Brian E. Murphy
5 months ago
It happens to EVERYONE. Disaster hits, you lose your job, a sudden illness strikes. We all find ourselves in situations where taking loans and maxing our credit is the only option. But just because you’re in debt doesn’t mean it has to take control of your life. Here’s a complete guide on how to clear your debts and start afresh!
Can you guess how many people across the world carry debts? According to new research by the Institute of International Finance (IIF), the worldwide debt stood at $253 trillion in 2019.
The average American owes around $6,354 in credit card debt and over $24,700 in loans (not including mortgage loans).
We are a globe in debt. And the numbers just go higher due to the COVID-19 pandemic and other global game-changing events.
If you, too, can’t keep up with your monthly debt payments and live from paycheck to paycheck—this guide is for you. Follow these seven easy steps and get your life back in the debt-free track in less than one month:
Tip #1: Try the Debt Snowball Method
If you can afford to pay more than the minimum payment each month – it can get you out of debt faster and help you pay less interest.
It’s called the snowball method—a simple way to speed up your get-out-of-debt-jail ticket and build momentum.
Let’s begin by listing all the sums you owe – smallest to largest.
Allocate most of your money on the small debts to get rid of them faster, and keep the rest of the budget for paying the minimum on bigger ones.
Once you’re done paying the small loans, the interest you pay will shrink, and paying the big ones will be gradually easier. That’s why it’s called “the snowball effect.”
It also allows you to log in a few “wins” that have a psychological effect on you.
The ultimate goal is to snowball all of your extra cash until all your debts are paid off.
Tip #2: Create the Perfect Budget for Debt-Annihilation
The most foolproof way to pay off your debt faster is cutting expenses and living on a frugal budget.
It sounds impossible, but it’s not – if you turn on the bare-bones budget – a method that has become super popular in the past three years.
You simply cut EVERY excess expense you can pinpoint. It highly depends on your habits. Some people will stop dining out, cancel that Netflix subscription, downgrade to the cheaper neighborhood butcher, etc.
Do this for as many days as you can and channel the extra cash toward your debts. You’ll find that in just two months, you’ll be able to breathe more deeply when you look at your balance. Don’t forget that this budget is a temporary thing. Little by little, you can bring back micro splurges and indulge yourself guilt-free in no time.
Turn on the bare-bones budget – a method that has become super popular in the past three years
Tip #3: Sell Stuff
Your biggest asset is… Well, your assets.
We all accumulate massive amounts of redundant clothes, appliances, furniture, and miscellaneous things we’ll never ever use. Look around the house and list the things you haven’t touched for over six months. They can all be considered as extra, and selling them will not only help you pay your debts quicker – they will also contribute to your new, clutter-free life.
A good old garage sale is always fun. But if you don’t want to start dragging stuff outside and deal with hagglers – social marketplaces are the place for you.
Take photos of your merchandise from all angles, name your price (20% higher than what you want to get for them to leave room for negotiation), share it with friends online, and transform your hoard into dollars!
Tip #4: Join the Gig Economy
Using the debt snowball method is a solid tactic, but if you combine it with a side hustle that brings in between $100-2,000 per month, you’ll pay off all liabilities twice as faster.
Think about a talent you can monetize. It doesn’t have to be something out of the ordinary. These days, you can work as a grocery picker and make an excellent wage in just a few hours.
Register in websites like Fiverr, Upwork, TaskRabbit, etc. and offer help in logo design, babysitting, cake baking, and whatnot. You can hustle in your spare time, earn your money securely, and get closer to that final debt payoff.
Tip #5: Negotiate for Low-Interest Rates on Your Credit Cards
Check your credit card statements. How high are the interest rates you pay? If it’s anywhere between 16%-18% – you’re paying too much.
Call your credit card issuer and negotiate better deals. You’ve been a cardholder with their om[any for long, and you deserve competitive conditions. Rest assured that requesting lower interest rates is a widespread practice.
But don’t stop at your credit payments; you can negotiate down on just about any type of bill payment (cable, phone, internet, medical bills, car insurance, etc.).
The less you pay for fixed expenses – the more money you can invest in your debt-free future.
Tip #6: Pay Your Debt with Found Money
The term “found money” refers to all of those unexpected sums of money that fall in your lap. A few examples of found money are an inheritance, a bonus at work, a tax refund, a raise, etc.
Most people buy a car, invest in stocks, or plan a trip to The Bahamas. Be smarter! Invest your found money in your well being and pay off your debt.
Each time you come across an unusual income source, use it to pay a chunk of your debt. Start with the small balance (the snowball method) and leave the rest for the big ones.
Tip #7: The Envelope Method to Getting Out of Debt
We’ve all become accustomed to cashless payments. Well, now that you need to get rid of your liabilities – it’s time to go back to the envelopes – envelopes of cash.
It’s a known fact that we spend less when we actually feel the physical bills leave our hands. You don’t have to cut all your credit cards. They can wait for you in the utility drawer until your debt is paid off completely. Until then, it’s cold, hard cash for you.
We spend less when we actually feel the physical bills leave our hands.
Take Control of Your Debt Today
The sooner you start facing your debt head-on, the faster you’ll pay it off.
Try implementing these seven tips in your financial routine today. If you see no results in a month, get some help from a non-profit credit counselor (it’s free) and stick with the plan they build for you.
Remember, you can live with debt all your life. A lot of people do. But why wait for a disaster to hit or live from paycheck to paycheck when you can be debt-free and calm, living the life you truly want?
Brian E. Murphy