Home » Headline, Personal Finance

How to Become Debt-Free: A Helpful Guide

29 February 2020 No Comment

Household debt in the U.S. reached a staggering $13.2 trillion in 2018. Consumer debt, on the other hand, hit $4.1 trillion in 2019. Yet, a growing number of Americans are taking out loans for expenses they cannot afford.

The good news is, there are ways to reduce and eliminate debt. It won’t be easy, but it’s the first step to regain your freedom and have greater control over your finances.

Wondering how to become debt-free? First of all, make sure you have a plan in place. Use the following strategies to get out of debt and keep more money in your pocket.

Stop Using Credit Cards

The more often you use credit cards, the more your balance increases. While it’s true that some credit cards come with all sorts of perks, you can enjoy these perks once you’re debt-free.

Make a weekly or monthly budget and stick to it. Use your wages to pay rent, utilities, and other essential expenses. Try paying cash and only buy what you can afford.

How to Become Debt-Free with the Snowball Method

Next, consider using the snowball method to pay off the smallest debt first. Once you’re done with it, move on to the next largest debt and so on. The key is to keep paying the minimum balance on larger debts.

This strategy makes it easier to manage your finances while paying off debt. Plus, it can help you build healthier financial habits and keep you motivated.

Except for mortgages, the snowball method can be used for any kind of personal debt. The reason it works so well is that it’s about behavior modification, not math.

Pay More than the Minimum Balance

A common mistake is paying just the minimum balance. If you pay more than that, you’ll avoid getting in debt in the first place.

When creating your monthly budget, set a fixed amount to put toward your debts. Aim for at least 20 percent of your salary. Just make sure the amount is higher than the minimum required.

Consider Debt Consolidation

Debt consolidation solutions appeal to individuals with high consumer debt. Professionals who offer these services can help you take out a loan with low interest rates to pay off other liabilities. Customers who make payments to the new debt enjoy better terms.

To put it simply, this process merges multiple bills and liabilities into a single debt. It works particularly well for high-interest debt as it helps reduce the monthly payments and interest rates on existing debts.

How much you’ll pay each month depends largely on your credit score. Reach out to credit card companies, banks, credit unions, and private lenders that offer debt consolidation plans. Discuss your options to make an informed decision.

Regain Your Financial Freedom

These are just a few of the strategies you may use to get out of debt. Depending on your particular situation, you may also want to double up on payments or tackle debts with the highest interest rates first.

Another option is to start a side hustle. For example, you can set a few hours aside every day and try your hand at freelancing. Consider your skills and seek ways to monetize them.

In the meantime, browse the rest of our blog for more tips on how to become debt-free, manage your money or increase your income. Be sure to check out our case studies too!

Comments are closed.