A large amount of debt can seem like an insurmountable burden. Though it might feel like you’ll never get out from under your financial obligations, with some short- and long-term planning and a few lifestyle changes, you can get a handle on the amount you owe and work your way toward tackling a large amount of debt.
These are a few strategies you can use to work on becoming totally debt-free:
First, you need to get organized. Get your total debts, savings, income, and monthly expenses on paper. Having these items recorded in a spreadsheet or other document is key to knowing how much you can set aside to still treat yourself every now and then and how much absolutely needs to go toward paying down your debt. You’ll also need to refer to this information to create realistic debt-management goals and track your progress.
Cut Spending and Increase Your Income
Next, you need to get serious about getting out of debt. This means cutting spending wherever possible and increasing your income if you can. Look at your budget for food and entertainment. These are two sources where you may find some excess spending. Cut or minimize meals in restaurants, and focus on free sources of entertainment. Drop your cable in favor of more affordable streaming services, and nix coffee shops in favor of preparing coffee and tea at home.
To increase your income, consider taking a part-time job, freelancing from home, selling items you don’t need, or starting a shop through eBay or Etsy. Make it a point to use this new income solely to pay down your debt.
Take the Snowball or Avalanche Approach to Paying Off Loans
Image via Flickr by Cheezsy
To help you stay motivated and avoid feeling like you’re drowning in debt, you can try one of two popular methods for working your way out of debt: the snowball method or the avalanche method.
With the snowball debt reduction method, you’ll focus on paying off your smallest obligations first. Each debt that’s totally settled will be a huge boost to your spirits, encouraging you to continue with your plan and work down your debt. Plus, you’ll no longer owe interest on the loans you’ve paid off.
With the avalanche method, you’ll stick to making the minimum monthly payments for all your debts but will pour any extra contributions you can make into the debts with the highest interest rates. This is ideal for significantly lowering the interest you owe each month and for paying your savings forward into your other accounts.
Lower Your Interest Rates
If you can secure lower interest rates, more of your money will go to paying down the capital, and you’ll get out of debt much faster. Plus, your monthly minimums will be lower, which means your payments will be more affordable. This can be an especially effective strategy for individuals with student loans. You can refinance student loans with varying interest rates into a lower more affordable rate.
No matter how much you owe, don’t get discouraged. You can get out of debt. Follow these tips to help manage your budget and work your way toward financial freedom.
How do you tackle debt? What do you think of these tips? Do you do the same? Do you have any other tips to add to this list?
*Disclosure: Collaborative post.
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