How to Get Rid of Debt in 5 Simple Steps

how to get rid of debt

Being in debt is no doubt a stressful experience. Unexpected circumstances may change our situation. Losing a job, getting into accident or increased obligations may make it even harder to repay a loan.

Sometimes being in debt is inevitable. 30% of all workers in the United States are self-employed. These often have to rely on debt to keep their business running. However, whether for personal or business use, debt is still debilitating.

On the other hand, debt may also be a result of uncontrolled spending. Implementing practical ways of how to become debt free is a good start.

5 Practical Ways to Become Debt Free

1. Make a conscious decision to stop borrowing money

The best place to start get rid of debt is stop depending it for funding your lifestyle. If you don’t have the cash to pay for something, don’t buy it. Make an affirmed decision to stop borrowing money. You can then focus on getting rid of the current debts you have.

2. Keep an emergency fund

An emergency fund helps you to pay for emergencies when they do occur. Do not rely on credit cards as a major source of emergency funding. Preferably put an emergency fund of $1000.

3. Create a budget and stick to it

A realistic budget is what you need to get out of debt. A budget helps you track your expenses and income. Moving towards your goal becomes much easier with controlled spending

4. Organize your debt

List all your debts starting from the smallest to the largest. This helps you have a working plan towards getting rid of debt. Look at debts with higher interest rate. Strive to get rid of these first.

5. Throw any cash you have at debt

If you happen to handle any cash, inject it at your debts. Source of this cash could be a tax refund, a sold car, won lottery etc.

Importance of Budgeting

Poor planning or lack of it is often the cause of careless spending. Getting into debt is easy when we cannot keep track of expenses. A budget will show you if you have a surplus or a deficit. It also helps you control your spending. You only buy what you need.

You can use your surplus to pay off debts with larger interest rates. It is important to talk to a financial advisor on how to create a realistic budget. You will get more tips on how to get rid of debt.

You can also find ways to earn extra cash in a month. This might include having to get a second job or working more hours.

A budget helps you reach your goal of getting rid of debt in yet another way. You can trim your expenses. Go over the list of items in a budget. Eliminate unnecessary expenditure. This could include canceling TV subscription, eating at home.

If you are determined to stick to these ways of how to get debt free, you will succeed.

Related: 189 clever ways to save money

When to Consider Debt Refinancing/ Consolidation

Two of the most common options of tuning up your debts are refinancing or consolidation.

The former means putting all debts into one single loan. This helps you avoid dealing with separate lenders. You will not be looking at different monthly and billing statements.

Refinancing is replacing your old debt(s) with a completely new loan. The goal here is to get lower interest rate. Mostly students may appreciate the need to consolidate student loans. As long as all the debts are from government programs.

Use the loan calculator at Financer.com and compare 27 lenders who can offer debt refinancing with better terms.

Think about these factors before refinancing or consolidating your debt;

  • Has your credit report improved? This puts you in a favorable position with lenders. You can start a tangible process of getting rid of debt with a new lender offering better terms.
  • Are the current interest rates low? You can take advantage of this situation. Move your variable rate to a fixed rate.
  • Can you change your payment term? Dragging debt for a long time does not help you become debt free. If you have an increased salary, pay of the debt within a short time.

How to Get Rid of Credit Card Debt

Accumulated credit cards are often the reason why we sink deeper into debt. They encourage uncontrolled spending. Gather all your credit card statements to figure out what you owe.

Note all the balances and interest rate for each card you owe. You can free up some cash towards credit card debt repayment.

  • Use cash until your bill is paid off. Avoid continued use of the credit card.
  • Consolidate all your cards to a card with a lower interest rate.
  • Calculate how long it will take to pay off debt in your credit card.

It would also be helpful if you talked to debt counseling agencies. Reliable advice is found on how to get rid of credit card debt.

Other Good Habits on Getting Rid of Debt for Free

  • Have an automatic saving s account
  • Pay bills on time to avoid penalties and accrued rates.
  • Take a shopping list with you when you go shopping. This will help you avoid impulse buying
  • Track and record all expenses.
  • Freeze credit cards
  • Live on less than what you make. You do not have to exceed your income when spending money. This will get you into more debt to keep up extravagant lifestyle.

These small habits will see you succeed on the journey of a debt free life. It may take a long time to clear all your debts. But being focused on your goal is the most important thing.

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