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Debt can feel overwhelming, especially when you can’t figure out how you can become debt free.
According to the Stash, 1 in 10 people identified the debt as their no.1 money stress source. Thus, debt is not only a burden on your finances, but it’s also impacting your wellbeing.
However, for every problem, there is a solution. Keep in mind that with the right mindset and strategy, it’s possible to tackle debt quickly. I’m not saying that your journey to debt free will be simple, but at the end of it, it will be worth it.
I wrote this plan to show you how to become debt free quickly. I followed each of those steps to get out of debt, and now I am debt free!
1 – Understand What You Owe
The first step is to understand what you owe. The goal of this step is to be transparent with yourself. Many people are lying to themselves or living in denial regarding their debt. By doing that, they keep piling up on more debt.
So as a first step, I recommend you to write down all the debt information on a piece of paper. For each of your debt, write down the current balance, minimum payment, and the interest rate.
If you want, I created a Debt Tracker Printable for my clients to help them visualize their debt situation and better track their progress. If you are interested, I will offer you the standard package for the price of the basic package. Just message me through the platform.
2 – Get Organized
Next, you need to get organized! It is a crucial step to follow if you want to tackle debt quickly and save money along the way. Make sure to have a strategy that works for you to remind yourself to pay your bills and your minimum payment towards your debt. The last thing we want for you is to take on more debt when you are on your way to be debt free.
For example, you can put a reminder or an alarm on your phone, sign-in on the alert notification program offered by your creditors, or any other way that will help you make your payments on time.
3 – Minimum Debt Payment
We already touched on this in step 2, but you must transfer your minimum payment towards your debt each month. You must make your minimum debt payment on time no matter which debt payoff strategy you use.
4 – Debt Consolidation
This step will save you a lot of money in interests. The goal is for you to take on a smaller interest rate debt to pay off your higher interest rate debt.
For example, if I have a credit card debt balance of $10,000 with an 18% interest rate. There are two debt consolidation strategies. The first one is to open another credit card with a 0% interest rate for a year and transfer my current credit card debt balance there. The other solution is to open a loan that has a 4.99% interest rate and transfer the money of the loan to pay off my credit card debt.
5 – Choose Your Strategy To Tackle Debt
Two of the most popular debt payoff strategies are avalanche and snowball. For both of those strategies, first, you need to make your minimum debt payments on time for all your loans. Then, you transfer your extra cash to a specific loan until you paid it off. After paying off one debt, you redirect its minimum debt payment towards the next debt.
In the avalanche strategy, you will have to rank your debt by interest rate. The debt that has the highest interest rate is the one to pay off first. With this strategy, you will save more interest money than the snowball strategy, but it will take you more time to see progress.
In the snowball strategy, you will have to rank your debt by their remaining balance. The debt that has the smallest remaining balance is the one to pay off first. With this strategy, you will see progress sooner than with the avalanche strategy because the number of debt you carry will decrease rapidly.
6 – Cut Your Spendings
After choosing your debt payoff strategy, you need to make as many extra payments towards your debt. One way to do that is to cut your spendings.
For example, you can reduce your utility bills by being more careful of your consumption. Similarly, you can reduce your phone plan, cut on restaurants, or cancel monthly subscriptions for a few months.
If you want to have more ideas on how to cut your spendings, check out our 19 best ways to save money.
7 – Make A Budget
You can also make a budget to have a better idea of where your money goes. It can help you identify which spendings to cut without making a significant impact on your lifestyle.
Here are 5 budget creation steps you can follow.
- Make a list of all your monthly expenses for the past months
- Define many categories that best fit your situation (home, food, bills, etc…)
- Insert your monthly expenses in each category
- Assess your current situation and decide what should be your monthly budget
- Keep track of your spendings to not go over your budget
You just read the best 7 steps to follow if you want to become debt free quickly. Another thing to look at is your daily habits because they are the ones who pushed you into debt.
In conclusion, it won’t be simple every day, but if you’re motivated to change for the best, you can succeed by following those steps. It will take some time, but in the end, you’ll be debt free. Time to take action!