Living under debt can be an extremely stressful experience. Here are some steps you can take to live a totally debt free lifestyle.
The average American’s total debt is at an all-time high. In many cases, this can negatively affect your quality of life.
Fortunately, minimizing (or even eliminating) your debt isn’t as hard as many people believe.
Not sure where to start? Don’t worry, we’ve got you covered.
Let’s take a look at everything you need to know about how you can establish a debt-free life.
Eliminate Your Existing Debt
As you may expect, getting rid of your current debt is one of the most essential priorities that you should keep in mind. Although this is far easier said than done, there’s a handful of steps that you can take to help speed up the process.
First, you should get in touch with your lenders to see if they offer any form of debt forgiveness. Depending on your circumstances, it may be possible to drastically reduce the amount that you owe.
When making payments, you should also focus on the debt that has the highest interest rates. For example, if you owe $10,000 with a 2.5% APR through one lender and owe $5,000 with a 10% APR through another lender, you should pay off the second loan far more aggressively.
Once you begin to cut down on the amount you owe, you’ll find that handling the rest is far more manageable. In fact, it’s even possible for most people to get on their way toward becoming debt free in a year.
Don’t Spend More Than You Have
It can be tempting to take advantage of credit cards. This is especially true for those who have access to large amounts of credit.
However, consistently spending more than you’re able to pay off can easily put you in an adverse financial situation. If you let your debt reach a high enough amount, you may even find that the money you owe in interest prevents you from actively paying it off.
Instead, keep track of what you have available in your bank account to spend on goods and services. It’s alright to use a credit card for these purchases as long as you’re actively able to pay it off.
In fact, it’s even recommended to do so since it will help you build your credit score.
Consider Good Debt Vs. Bad Debt
Not all debt is created equal. You have the opportunity to accrue both good debt and bad debt, and there’s a drastic difference between both.
For example, purchasing a superfluous amount of clothing is more than likely considered ‘bad’ debt for most people. Unless this clothing can somehow help you pay off the amount you spent (such as if you’re paid social media posts), you’ll be putting yourself in an unfavorable situation.
Good debt, however, is often worth the financial burden that you impose upon yourself. One of the most common forms of good debt is a mortgage, as paying it off will allow you to build equity in the associated property.
Similarly, paying for an education with student loans is another form of debt that has benefits to outweigh the negative aspects of borrowing money. This is particularly true for those who seek an education in science or medical-related field, as their salary will often allow them to pay off their debt fairly quickly.
Create a Budget (And Stick to It)
Even individuals who have a notably high level of income still suffer from debt due to poor financial management. Many people make purchases based solely on the fact that they desire the good or service, and doing so frequently can quickly add up the amount you spend each month.
Fortunately, creating a budget is both a simple and effective solution that can help keep you out of financial trouble. To help get started, consider costs like:
- Monthly bills (gym membership, subscription services, etc.)
- Rent/mortgage payments
- Gas/vehicle maintenance
- Miscellaneous costs (childcare, dining out)
From here, aim to eliminate as many unnecessary expenses as you can without drastically affecting your quality of life. For instance, it’s often reasonable to cut down on how much money you spend on alcohol each month.
A gym membership, though, is often a necessary expense for those who want to stay in the best shape possible (or are training for a sporting event).
The further you can reduce your monthly expenses, the less likely you’ll be in a situation where you need to take upon debt in order to complete a purchase.
Actively Save Money
In order to stay debt-free, you’ll need to actively (and often aggressively) save money each month. This will allow you to establish a significant emergency fund that you can use to handle contingencies.
Car trouble, for example, can easily cost thousands of dollars to repair. If you don’t have the cash readily available, you’re going to end up paying more than the cost of repairs due to the interest rate on a loan or credit card.
Reducing your monthly expenses will greatly facilitate how much money you’re able to save and allow you to minimize the amount of debt that you incur. Keep in mind, though, that taking upon good debt my be favorable in certain situations— it’s often not feasible to purchase a home outright without a mortgage.
Establishing a Debt-Free Lifestyle Can Seem Difficult
But it doesn’t have to be.
With the above information about how to live a debt-free life in mind, you’ll be well on your way toward making the decisions that are best for you.
Want to learn more tips that can help you out in the future? Be sure to check out the rest of our blog.