Debt can be a huge burden, and it’s easy to get caught up in the cycle of borrowing and spending. To break free from debt, you need to start by making a budget and sticking to it. A budget is a plan that shows you how much money you have coming in and going out each month. It helps you prioritize your needs and wants, and allocate your money accordingly.
But making a budget is not enough. You also need to follow some proven strategies to pay off your debt faster and save more money in the long run. Here are eight simple ways that work:
1. Save a starter emergency fund
Before you start paying off your debt, you need to have some money set aside for unexpected expenses. This is called an emergency fund, and it can prevent you from going deeper into debt when life throws you a curveball.
Aim to save at least $1,000 for your starter emergency fund. This money is for emergencies only, so don’t touch it unless you have a real crisis. Keep it in a separate savings account that is easy to access but not too tempting to use.
2. Find out how much debt you have
To get out of debt, you need to know how much debt you have in the first place. Make a list of all your debts, including credit cards, personal loans, student loans, car loans, etc. Write down the balance, interest rate, minimum payment, and due date for each one.
Then, add up all your balances to get your total debt amount. This number might shock you, but don’t let it discourage you. It’s just a starting point, and you can reduce it with the right plan.
3. Pay off your debt with the debt snowball method
One of the most effective ways to pay off your debt is to use the debt snowball method. This method involves paying off your debts from smallest to largest, regardless of interest rate. Here’s how it works:
- List your debts from smallest to largest balance.
- Make the minimum payment on all your debts except the smallest one.
- Attack the smallest debt with as much extra money as you can.
- Once you pay off the smallest debt, take its payment and apply it to the next-smallest debt.
- Repeat this process until you pay off all your debts.
The debt snowball method works because it gives you quick wins and builds momentum. As you pay off each debt, you’ll feel more motivated and confident to tackle the next one.
4. Increase your income
Another way to get out of debt faster is to increase your income. The more money you have coming in, the more money you can put toward your debt payments.
There are many ways to increase your income, such as:
- Asking for a raise or promotion at work
- Working overtime or taking on extra shifts
- Getting a side hustle or a part-time job
- Selling stuff you don’t need or use
- Renting out a spare room or parking space
- Offering your skills or services online
Whatever you do, make sure that you use your extra income wisely. Don’t spend it on things you don’t need or want. Instead, use it to pay off your debt or save for your future goals.
5. Cut your expenses
Another way to get out of debt faster is to cut your expenses. The less money you spend, the more money you can save or use to pay off your debt.
There are many ways to cut your expenses, such as:
- Canceling subscriptions or memberships you don’t use or need
- Switching to cheaper providers for utilities, phone, internet, etc.
- Shopping around for better deals on insurance, loans, etc.
- Using coupons, discounts, or cashback apps when shopping
- Cooking at home instead of eating out
- Making coffee at home instead of buying it
- Taking public transportation or carpooling instead of driving
- Doing free or low-cost activities for entertainment
Whatever you do, make sure that you track your spending and stick to your budget. Don’t deprive yourself of everything you enjoy, but be mindful of where your money goes and how you can spend it better.
6. Negotiate with your creditors
Another way to get out of debt faster is to negotiate with your creditors. Sometimes, you can lower your interest rate, reduce your fees, or settle for a lower amount than what you owe.
To negotiate with your creditors, you need to:
- Contact them and explain your situation
- Ask them if they can offer any relief or assistance
- Be polite and respectful but firm and persistent
- Have proof of your income and expenses
- Have a realistic proposal of what you can afford to pay
- Get everything in writing before agreeing to anything
Negotiating with your creditors can be intimidating, but it can also save you a lot of money and time. However, be careful of any scams or shady offers that sound too good to be true. If you’re not sure how to negotiate or what to say, you can get help from a reputable credit counseling agency.
7. Consider debt consolidation or debt settlement
Another way to get out of debt faster is to consider debt consolidation or debt settlement. These are two options that can help you simplify your payments and reduce your debt amount.
Debt consolidation involves taking out a new loan to pay off your existing debts. This way, you only have one payment to make each month, and you may get a lower interest rate or a longer repayment term. However, debt consolidation can also increase your total cost of borrowing and extend your time in debt. Plus, you may have to pay fees or charges for the new loan.
Debt settlement involves negotiating with your creditors to accept a lump-sum payment that is less than what you owe. This way, you can get rid of your debt for less money and in less time. However, debt settlement can also damage your credit score and expose you to tax liabilities. Plus, you may have to pay fees or charges to the debt settlement company.
Debt consolidation and debt settlement are not for everyone. They have pros and cons that you need to weigh carefully before deciding. If you’re considering either option, make sure you do your research and compare different offers. Also, avoid any companies that charge upfront fees or make unrealistic promises.
8. Avoid taking on more debt
The last way to get out of debt faster is to avoid taking on more debt. This means no more using credit cards, taking out personal loans, or borrowing money from anyone.
Instead, use cash or debit cards for your purchases. If you don’t have enough money to buy something, save up for it or find a cheaper alternative. If you have an emergency, use your emergency fund or find another way to cover it.
By avoiding more debt, you’ll prevent yourself from digging a deeper hole and adding more stress to your life. You’ll also free up more money to pay off your existing debt and reach your financial goals faster.