Debt can eat away at your life if you let it – the stress, worry, and financial burden make it hard to enjoy life to its fullest. This debt-free living guide will help you break free from the chains of debt and start enjoying the freedom that comes from being in control of your finances. You’ll learn how to create and maintain a budget, find ways to reduce your debt payments, get out of credit card debt completely, and more! It may take some sacrifice, but the sooner you get started the sooner you’ll be debt-free!
1) Know Where You Stand
It’s important to know where you stand financially before you can make steps towards leading a debt free life. Here are the five financial factors you should know about in order to get an idea of where your finances stand:
Net Worth – Your net worth is the difference between what you own and what you owe. A positive net worth means that you’re currently ahead of the game, while a negative net worth means that there’s more debt than assets. It’s important to have at least $1,000 cash on hand for emergencies, otherwise even if you have a high income or savings account, it may not be enough to cover unexpected expenses like car repairs or medical bills.
2) Make a Plan
- Get your credit report and check for errors.
- Create a budget that has room for savings and entertainment, but not credit card debt.
- Save up an emergency fund of 3 to 6 months salary, or $1,000-$2,000 if you are living paycheck-to-paycheck.
- Pay off your highest interest rate first so you can save money on monthly payments and pay it off faster.
- Compare interest rates before opening new cards or signing up for store credit cards and only open what you need when you need it–no more!
3) Set Some Goals
One of the easiest ways to lead a debt free life is by consolidating your debt. By combining all your debts into one monthly payment you can see how much you can save each month in interest payments. Plus, you’ll have one low monthly payment instead of several that could be hard to keep up with.
If it’s not possible to consolidate your debt, try paying off the highest interest rate balances first so that the lower rates balances are easier to pay off. You might also consider putting more money towards your high interest rate balances and less on other accounts if you’re struggling financially or if there’s a change in circumstance like an unexpected expense or job loss.
4) Consolidate Your Debt
The first step in leading a debt free life is consolidating your debt. This can be done by taking out one low interest loan and combining all of your high interest loans into one. It will save you money on monthly payments, but it will take some time for the savings to accumulate. There are also many other ways of reducing your debt such as negotiating with creditors or refinancing your home mortgage. However, these options may not work for everyone and they do come with risks. If you want to lead a debt free life, you need to make sure that you are making the right decisions in order not to add more financial stress to yourself and your family
5) Attack Your Debt
Debt can build up quickly with credit card debt, student loans, car payments and more. To lead a debt-free life, start by paying off your smallest balances first. If you owe $5000 on one credit card and $2000 on another, focus on paying the smaller balance off first. The lower interest rate will save you money in the long run. Next, create an emergency fund of 3-6 months’ worth of expenses so that you’re prepared for any unforeseen expenses or income loss. Finally, get your spending under control by tracking where your money is going and setting up budgeting tools like Mint or YNAB (you can even set it up on your phone!). Once these three things are in place, the rest is just small steps toward bigger goals!
6) Find New Sources of Income
It’s easy to feel like you’re never going to be able to pay off all your debt when you’re saddled with so much of it. But there are plenty of ways you can reduce the amount of debt you owe or increase your income so that it becomes easier for you. Here are ten strategies for reducing debt and increasing income that have been proven effective by people who have used them:
- Take control by getting organized. If you know what needs paying off, how much money is coming in, and what expenses need paying, then it’s easier to make decisions about where best to spend your money. 2.
7) Cut Your Expenses
- Cut your expenses
- Invest your savings
- Save your income
- Get rid of debt
- Build an emergency fund
- Automate your finances
- Remove temptation
8) Live Below Your Means
Sometimes it can be easy to get caught up in the materialism of life. But living below your means not only saves you money and time, but it can also save you from debt. Here are 10 ways to live below your means:
- Save up for what you want – It may seem counterintuitive, but saving up for something instead of spending your money on it will help you live below your means. If you have the funds available and know that there’s no need for a loan then go ahead and buy what you want; if not, then wait until you do or find an alternative.
9) Use Cash
One of the best ways to live debt-free is by using cash. Put your credit cards away and use greenbacks, instead. You’ll be able to track your spending much easier, and you’ll never have that feeling of being in over your head with your balance. Plus, you can avoid all those pesky fees that come with credit cards.
10) Stay Motivated
- Write down your goals. 2. Picture yourself achieving them and what it will feel like when you do. 3. Look at the reasons why you want these goals and remind yourself of them often. 4. Find someone else who has achieved what you want and ask how they did it and how they kept going when things were difficult or got tough. 5. Think about your future self and what she would say if she were able to talk to you now, looking back on all this work you’re putting into getting out of debt – wouldn’t she tell herself that it was worth it? 6. Remind yourself why getting out of debt is so important for your life – is it so that you can have more time with your kids?