Are you sitting on a pile of debt and wondering how will you be able to repay it?
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Whether it’s your car loan, home loan, student loan or credit card bills, living in debt isn’t easy at all. The cost isn’t just limited to some grands that you have to repay, but mental and emotional stress too that is probably keeping you awake at night. And when you think about the life that you have been dreaming about, all you wish for is to be debt-free as soon as possible. But here’s the thing: Once you get your priorities straight and be determined to pay off that debt as soon as possible, all you need to do is form a plan of action that you would stick to until you are debt-free.
Here are 11 Tips to get you started on a debt-free life:
1. Set your financial goals, long-term as well as short term – Where do you see yourself standing next month, next year and five years from now? You need to have an answer for these questions in order to get started. Setting your financial goals helps you establish your priorities. Once you get your financial goals in place, everything else needs to work around the same. If you’re sitting on a hundred grands of loan and your goal is to be able to repay 10% of it by next month, every aspect of your life should revolve around it until you achieve that goal. Give up eating at a restaurant for a month if need be, resort to bulk buying the necessities for a while to save every penny that you can and take public transport instead of driving yourself to work in your car. Remember, that short term goals when accomplished will get your long-term financial goals in order.
Similarly, if saving enough money for your child’s higher education is what you want to achieve in the long-run (besides repaying the debt), stop spending money on things that can wait or simply resort to inexpensive options. Buy a two-wheeler instead of a car or postpone purchasing a household item you don’t need immediately. Whatever your goals are, it’s important to never lose sight of them to have a better financial life.
2. Make a budget and live by it – Having a budget for your everyday needs keeps your expenses in check. Small allowances like a cup of coffee at work or a family movie date once a month can also form a part of your budget so you don’t give up on enjoyment altogether. Budgeting is something that you must do even when you are debt-free as it helps you live a financially organized life besides preventing unnecessary expenses.
Also, it’s better to save up in advance for big purchases rather than emptying out your savings all at once. In order to track my savings for the forthcoming purchases, I use this Savings Tracker that keeps me focused towards achieving my saving goals. So if I want to take a vacation 3 months from now, I start saving up for it from now so that I don’t end up shaking up my budget.
3. Discuss your purchases (however small they are) with each other in the family – You don’t want to feel stunned by an unknown video game purchase that your spouse made for your child. It’s important to discuss your purchases before actually affecting them to rule out the possibility of it ruining your budget. Discussing your purchases becomes all the more important when your family is living on one income. No matter how small the purchases, it’s important to discuss them with each other to catch hold of where the money is going.
You must also maintain an Expense Tracker to track every small purchase that has taken place during the month. It will help you point out the unnecessary purchases that can later be curbed to save money.
4. Live a Frugal Life no matter what – There is no doubt that frugality is one thing that keeps you rich and sorted. A small step towards frugality can help you save some big bucks that can repay a big chunk of your debt. For more information on how to go about living a frugal life, you can head over to the following two posts:
- 10 ways to control Impulse Spending in order to meet your financial goals.
- Tips On How To Save More Money In College.
- 10 Super Simple Ways To Save Money On Groceries.
- How To Save Money On Your Monthly Electric Bill.
Being able to save money on your food bill can be a huge step towards living a frugal lifestyle as groceries account for majority of our spending. Meal Planning is one of the most handy ways to save money on food and prevent food wastage. I always lagged behind in this area as I had no time to plan my meals until I heard of $5 Meal Plan before deciding to give it a go. To my surprise, my food bill has reduced by half without me putting in any efforts as the job is being done for me for as low as $5.
5. Live within your means – Spending more than what you are earning is the main reason why you will find yourself in debt which is why it’s extremely important to live within your means and spend less than what you earn. If you can’t afford to buy a luxury brand, don’t buy it for it’s enough to set you behind in your financial life. To be able to live within your means is a habit that we all must inculcate within ourselves, whether we are debt-free or not.
6. Learn to say NO, to your kids and to yourself – We often don’t realize how we waste many on things that we don’t really need. We impulsively get convinced by friends to go for vacations we can’t really afford or we end up spending more than we actually planned to. Sometimes, unplanned expenses take over our financial goals and it’s too late before we actually happen to realize it. In order to be debt-free tomorrow, you need to make the necessary sacrifices today.
7. Increase your income – In order to get out of debt as quickly as possible, it’s important to expand your stream of income. Work extra hours until you don’t have to anymore or pick up a side-hustle to chip in some extra money. This comes with a need to work harder but it will all be worth it.
Besides expanding the sources of money, you must also keep a track of your income on a regular basis. Be it your salary, tax refunds, cashbacks, dividends, gifts or interest, everything should be noted down on an Income Tracker. Make it a point to save up any extra income to pay off your debt.
8. Build an Emergency Fund – The urgency to repay your debt shouldn’t rule out the necessity of having an emergency fund for the uncertainties that come along with life. Before you give away every piece of your savings towards debt repayment, make it sure to build an emergency fund for any medical or other family emergency that might arrive. I use a proper Emergency Fund Tracker for this purpose as it helps me keep a track of the progress. Having an emergency fund is your financial cushion against the uncertain life and it should be the first thing that you build before starting to repay the debt.
9. Stop obsessing over what your pals are doing – Peer pressure and an associated desire to live a rich life often forces us to make wrong financial decisions. You are randomly scrolling through your social media feed only to catch a glimpse of your old school friend vacationing at an exotic location and you can’t help but obsess over his life. Well, that’s when you need to get hold of your wants and think of spending money on things that you actually need or you will be driven to a life that might drown you further into a pool of debt. Focus on what you can afford and not what can drive you further into debt.
10. Stop using those Credit Cards – When you are under debt, one of the most useful ways to keep your spending habits in check is to stop using credit card altogether. Credit card comes with an urge to spend money you don’t actually have. Start using cash more often in order to spend wisely. If you don’t have enough cash for what you want to buy, skip or postpone the purchase for a later date when you’ll have cash in your hand.
11. Get a plan together on how you’ll go about repaying your debt – Here comes the part where you need to plan your debt-repayment timeline to get rid of it altogether. The timeline so created is extremely important to keep your progress in check. Remember that with every point on the timeline, you are relieving a bit of stress and walking ahead towards a debt-free life.
Getting out of debt is all about finding courage to keep going. Most of all, you need to stay motivated during your debt repayment journey in order to make it smoother for when you’ll look back at the huge pile of debt you were sitting on yesterday, the fact that you are debt free today will make all the sacrifices worth it.