Tina RothThere is nothing more financially reassuring than eliminating your debt – it’s liberating that you don’t have to think about the next payment or due date. And while there are those who find it easy to stay virtually debt-free, some find it doubly difficult to keep out of the red.
Whether your balance is $5,000 or $50,000, the principles in avoiding the accumulation of debt are the same. Here are seven tips you can start applying today to keep debt at a minimum and begin your journey to become debt free now #debtfreenow:
Pick One Debt to Pay Off Completely First
You might be tempted to distribute your payments across all debts, thinking that you can get rid of more in a shorter period. However, you may find that you’re spreading yourself too thin and find it even harder to get out of debt.
Choose just one debt and finish paying that one off before moving on to the next. If you have multiple debts that accumulate interest, pay the minimum amount due of those, while allocating a bigger amount for your “priority” debt.
Debt prioritization, though, can be a tricky subject. Looking through a financial lens, you should pay off the highest-rate debt first – paying off $100 towards a $2,000 bill with 15% interest rate will produce better results than paying off $100 for a bill at 5% interest.
However, there’s also a benefit in paying off the smaller bills first – you can produce early results, and make yourself feel better about eliminating your debts and therefore feel more motivated to pay off the remaining ones.
Track Your Purchases
Make a list of your fixed versus variable expenses – say your weekly groceries versus dining in a restaurant – and create a budget plan based on these items and your actual income.
Always allocate funds for your fixed expenses, such as water and electricity.These are basic needs that can’t be compromised, so never take money away from these funds to spend for a variable expense.
For fixed supplies such as toilet paper, soap or shampoo, you can opt for budget brands while you’re in the process of climbing your way out of debt. As for non-essential variables such as desserts, video games and cable TV, it’s better to eliminate these expenses from your budget as you recover financially. You’ll be surprised how much of these you can actually live without.
Follow a Schedule
In relation to keeping watch over your expenses, it’s also wise to follow a fixed schedule in paying off your bills. Here’s a tip: Don’t try paying everything on a single date — you’ll probably feel overwhelmed shelling out huge amounts of cash in one day.
Instead, review the due dates of your bills, group those that can be paid on the same date, and make a payment schedule for a specific set of bills. If you need to make multiple payments — say half of your monthly bill every two weeks to lessen the burden – then, go for it. Set reminders on your phone or mark your calendar so you don’t forget that your payment schedule is coming up.
Cut Off or Downgrade Services and Subscriptions
You probably have unnecessary or redundant services at home that you can cut off or downgrade to cut back on costs. Do you have a relatively fast internet connection? You can probably get your important online activities done with a more basic and more affordable subscription.
You might want to get a cheaper cable TV package or have it removed entirely and opt for online streaming services instead. If you just can’t let go of cable TV, evaluate your viewing habits and ask your cable company to remove the channels that you don’t watch often.
Newspaper and magazine subscriptions you may think are “regular services” in your normal life should be reviewed and given consideration as essential services. The cash you’ll free up can be used to make a dent on your debt payments.
Allocate Part of Windfall to Debt
Do you have a part-time job or occasional freelance work? You might be tempted to spend all that extra cash on your non-essential expenses. Before you do that, consider how much faster you can get out of debt if the funds went to your monthly payments.
It’s really a matter of discipline and emotional intelligence. Avoid falling into the trap of thinking you can spend the extra money on frivolous items because you feel you worked hard for it. The reality is that most people incur debt because they spent the money they had not earned yet. There’s a price to pay for instant gratification – you just have to realize your extra income is part of being fiscally responsible.
Monitor Your Progress
For some reinforcement and motivation, remind yourself not of how much you still have to pay but of how far you’ve come along in paying off your debts. Stick notes on your fridge, color-code your calendar,use your phone’s reminder feature – anything to help remind you that you’re making headway.The end goal is to not stop until you are debt free.
Get Professional Help
Sometimes, financial trouble can seem like a never-ending battle that’s impossible to solve alone. There’s no shame in coming to terms with needing a little assistance with the problem, developing a plan to address it and keeping yourself on track to get back to good financial health.
In cases like this, there are some very valid and legitimate options to get help from debt relief professionals who understand how to guide you in reducing your debt or helping you to create a plan to eliminate your debt completely. These experts know the ins and outs of the credit system and they’ll be able to provide you the best advice on how to reduce debt in a sustainable way.
You may be surprised with how far you can get along with negotiation, debt consolidation and good, old fashioned budgeting. Keep in mind that most personal finance problems have a solution. You just have to be well-informed and disciplined to turn your situation around.
Remember that the accumulation of debt can happen to anyone. It doesn’t mean that these people are bad or stupid – it only means they made some mistakes that can be corrected. What matters is that you’re taking the high road by owning up to the situation and honoring obligations to your creditors.
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