Debt has become part and parcel of our life today. Studies show that the average American carries roughly $38,000 in debt, excluding mortgages. Sometimes, a debt burden can grow too large to bear.
As a result, you could get caught in what experts call the “debt cycle” — a situation where you have to borrow money just to keep up with the payments on your existing loans.
The good news is that it is entirely possible for you to get out of debt, no matter how bleak things might seem now.
Here is a collection of proven strategies that can help you move toward debt-free living fast and start your way toward permanent financial freedom.
Assess your financial situation
This is the first step you need to take in order to achieve the goal of leading a debt-free life. In many cases, people who are caught in a vicious debt cycle do not even know how much they owe and how long it will take to pay off the debts.
If you find yourself in a similar situation, you should first assess your financial situation and know where you stand. Here is how you can do it.
- Get your credit report, mortgage statements, bank statements, credit card statements, and other such documents.
- Make a list of all the credit cards you own and the loans you have (mortgage, student loan, personal loan, business loan, and so on).
- Make a note of the total outstanding amount (loans as well as credit cards), the rate of interest, and the minimum payments.
- Calculate the amount of money you need to pay off your debts.
Renegotiate with your lenders
Contrary to what many people think, interest rates (on credit cards as well as loans) are not set in stone. You can always renegotiate and if you do it the right way, you can get your interest rates lowered in most cases.
First, get a copy of your credit score. A reasonably high credit score can give you a lot of negotiating power.
If you have a history of making payments on time, your lender is likely to consider your request, since they do not want to lose a good customer.
You can get personalized quotes from two or three different lenders (for credit cards as well as loans) and use it as leverage while negotiating with your lender for a lower interest rate.
Similarly, you can also lower your cable bill, internet bill, phone bill, and auto insurance rates by negotiating with the service providers.
If you are sincere, have realistic expectations with respect to the interest rate, and have a track record of paying bills on time, your lender or service provider is likely to consider your request.
If they do, not only can you save a lot of money in the long run but also pay off your debts much faster.
Reduce your expenses
One of the common reasons why many people get into debt in the first place is that they spend more than they can afford.
Reducing your monthly expenditure should be your number one goal. There are several ways in which you can reduce your day-to-day expenses.
It’s not easy to avoid the siren call of modern marketing, but it’s important to try.
- Choose non-branded items over branded items — be it groceries, clothes, footwear, or accessories.
- Stockpile non-perishable items like canned goods and cereal whenever they are on sale so that you do not have to buy them on a regular basis.
- Avoid buying things on an impulse. Before you go shopping, make a list of things you need and stick to it.
- If you are struggling to keep up with your monthly rent payments, consider moving to a low-cost area. If you are single, take in a roommate to help you with the rent payments.
- Buy a used car instead of a new car. If you live close to your workplace, consider walking or biking to work. Use public transportation whenever possible and use your car only on an as-and-when-needed basis.
- Cancel your cable subscription and subscribe to cheaper media services such as Netflix and Amazon Prime Video.
- Avoid eating out and cook your own food.
Sell things that you no longer need
Take a good look at your place. Do you find anything that you no longer use? It could be anything, from old furniture to electronic items, clothing, books, or household items.
You can sell it online through Amazon, eBay, Bonanza, Facebook Marketplace, and Craigslist or through an old-fashioned garage sale or yard sale.
Get a second job
If you are dependent on a single source of income, your day job, you might find it hard to keep up with the loan repayments. So, get a part-time job or start your own home-based business to earn more money.
There are several websites where you can bid on a variety of different projects as a freelancer, complete the task assigned to you, and get paid for the same. Remember, just about any skill you have can be monetized, such as graphic designing, coding, translation, tutoring, writing, and many more.
The income from your part-time job or business should be allocated towards debt repayments. If you spend it on other things, it defeats the very purpose of getting a second job.
Consider the ‘debt snowball’ method
Start with the smallest debt you have, try to pay it off as quickly as possible while making minimum payments on other debts.
Once you pay it off, move on to the next smallest debt and follow the exact same strategy. It is a tried-and-tested strategy to get rid of your debt burden in a fast and efficient manner.
Consolidate your loans
Sometimes, you might find it difficult to keep track of multiple loans and keep up with the monthly payments. In such cases, you can get a debt consolidation loan and combine all of your debts into a single loan at a lower interest rate.
Once you do, you should live within your means and make sure you do not borrow money for any reason ever again.
Start debt-free living and stay out of debt
The aforementioned strategies can help you get out of debt and improve your financial situation.
Remember, debt is a choice. It’s optional.
With the possible exception of home mortgage, you do not need to borrow money for any other purpose. Instead, live within your means, save a portion of your income, and invest it wisely.
Once you finally out of the debt trap, only then can you take the first step towards debt-free living and total financial freedom.