One of the greatest stressors for adults is the amount of debt they hold. High-interest debt causes you to throw money away each month and holds you back from achieving your financial goals. If you have a significant amount of debt, it will affect your credit score and your ability to get a car loan or a home loan. Start making significant progress on your debt with these easy steps.
1. Sort Debt by Interest Rate
It’s important to be aware of the interest rates of all the debt you possess so that you can pay off high interest quicker. When you have money that can go toward your debt, you should first pay off your debt with the highest interest as this is what will cost you the most money in the long run. It can be daunting to look at all your interest rates and rank your debt from most to least expensive, but doing so will save you a lot of money.
2. Set a Budget
If you don’t set a monthly budget you’re likely going to waste money on non-essential expenditures like eating out or entertainment. Decide what you’re comfortable spending on a fun budget after all your bills are paid. Doing so will also help you see how much money you have every month to put toward your debt. It can be motivating to figure out how quickly you can pay off your debt if you pay the maximum amount every month. Focus on your goals when you’re tempted to go out and spend more money.
3. Don’t Pay Only the Minimum
If you pay the minimum amount due every month on your credit cards and loans, you’re going to be in debt many years to come. Doubling your debt payments will mean you become debt free in half the time. As tempting as it may be to contribute only the minimum payment required and enjoy the extra money you have, resist the urge. If you can afford more than the minimum, then pay as much as possible.
4. Freelance for Extra Cash
If you have a hobby or skill people are willing to pay for, you can utilize that to pay off your debts quickly. Your day job may pay your bills but you can designate any freelancing money directly to your debt. There are many different ways to freelance online if you don’t already have an idea of what you could do in your free time to accumulate more money.
5. Continue to Spend Occasionally
While spending at all may seem counter intuitive to your goals, if you cut out all spending then you’re going to become very burnt out trying to pay your debt quickly. Instead, continue to splurge on the little things you love most. If you really look forward to going out with friends on Saturday night and staying in makes you miserable, continue that outing while you cut other spending. If you continue to have activities you enjoy, you’re more likely to stick to your budget. Don’t put yourself at risk of giving up on your budget entirely by making yourself unhappy.
Don’t let your debt control your life. Make a plan, stick with it, and feel accomplished every month when you stay on track. It may take a lot of effort, but if you make paying off your debt a priority, you’ll live a significantly more relaxed life.
