When debt looms heavy in the back of your mind, you feel hopeless. Thousands of Americans like you suffer from debt every year, so you’re not alone in your sleepless nights. Whether you have tax debt, a mortgage, credit debt or outstanding student loans, any debt can feel overwhelming. It’s easy to feel trapped and alone but financial freedom is within reach if you have the right strategy. Below are the four strategies to get out of debt.
Make a List of Your Debt
List all of your debt. Use an Excel sheet or write down all of your payments. Create columns that include the creditor, the balance, the interest rate and the minimum payment. Once you write them down you are already taking control over your situation and you can move forward.
Once you make a list you can decide which method to use to pay off your debt. There are two popular ways to do this. The first is called the snowball method. With this method you pay your smallest debts first. This is attractive to some because it allows you to check off your debts faster. Taking care of small debts first can inspire and motivate you to keep going.
The second strategy is the avalanche method. In this method you first pay off your debt with the highest interest. Interest builds over time and can make even your lowest debt a burden. Many financial advisors will advise you to use the avalanche method because it it’s the most technical way to pay off debt; you’ll save more money in the end if you’re willing to pay off the highest interest first. Whichever method you choose, make a promise to yourself to follow it through
Stick to a Budget
Budgeting is the only way to achieve your financial goals. When you create a budget you first need to list all of your monthly expenses, starting with the most important. Monthly payments like housing payments, rent, medical insurance and gas money should all be prioritized first.
Take the remaining amount you have every month and determine what you can afford to spend. It’s no use paying your debt without enough wages to live, so you need to save enough to pay for things like groceries, cleaning supplies and day care. List these expenses in order of importance. If an expense doesn’t seem necessary, scrap it. If you’re grocery budget is blown out of proportion, it’s time to cut back or find a cheaper grocery store. Suddenly the organic sprouted non-GMO bread may not sound appealing when you spend an extra 6 dollars a week on it. Remember that what you cut back now will give you financial freedom sooner. Cut back expensive habits like happy hours, going out for lunch, and morning Starbucks runs.
Create Healthy Spending Habits
Committing to a budget you’re not used to is difficult. You’ve been in the habit of spending money as you please with a larger amount of money. However the days of using your credit card on a whim are over. Now it’s time to be conscious of what you spend. Download an app like Mint to track all of your expenses. Mint is especially useful because it even tracks your spending from before you downloaded the app. This makes it easier to understand the pattern of your spending habit.
Your paycheck disintegrates when you make small purchases. Wondering where all of your money went? It probably went toward that new pair of Louis Vuitton pumps you just had to have. Instead of making many small purchases, make yourself a long-term goal. Paying off debt can be one goal but you can also make others. Start to plan a trip to Europe or a new house to raise your family. These goals are more tangible, exciting and they will motivate you.
Have a Deadline
If you have a plan you won’t pay forever. Every plan has a deadline, and you should make one for yourself. Calculate how long it will take you to pay it off. Research programs that can help you along the way. The Fresh Start Program started in 2008 to help people pay off debt, for example. Whether you pay off tax debt or student loans, dedicate any extra money you receive to your payment. This will make your timeline shorter and get you closer to financial freedom.
Financial freedom is within your grasp. Take control of your debt by following these tips today.