Practical and Useful Tips on How to Pay Off Debt
Are you struggling to manage all your debts and need a plan to pay them off? Well, all it takes is a bit of careful planning and thinking outside the box to get yourself out of a financial mess. However, before you start, you first need to jot down all the debts and financial obligations you have on a monthly basis.
Simply make a list of your debts and create three columns for type of debt, remaining balance, and interest rate. You must also identify the nature of the debt, such as credit card debt, mortgage debt, student loan debt, etc.
Once you have the list, follow the most practical and valuable tips in this article in any combination that suits your situation.
Budget Your Expenses
The first step towards paying off your debts is to keep track of your incoming money and outgoing expenses every month. This will help you stay organized and learn about what you are paying for each budget. You will also get to identify any frivolities in your money spending habits and rectify them.
You can use Microsoft Word or a spreadsheet to create a budget tablet. If you are a more tech-savvy person, then several budgeting apps are available on iOS and Android devices.
Change Your Lifestyle
Getting rid of the debts requires some serious changes to your lifestyle and behavior. Stop indulging in impulse buying, especially when online. Avoid eating out or ordering a takeaway; stick to homemade food. You can find some delicious recipes that you can cook on a budget.
As you limit your expenses, you will find yourself with more money to spare by the end of the month. You can use this cash to pay off your outstanding debts quicker than you think.
Create a Passive Income Stream
Do you have a talent or skill that you can use to create an alternate income stream? This extra income can help you get rid of your debts sooner. For example, if you are good at photography, you can use your skills to take pictures and upload them for licensing by companies and individuals.
Selling music, content writing, and running a laundry service from home; there are numerous options that you can explore to create a passive income stream.
If you have a lot of debt and struggle to deal with them, it is time to consolidate your debts into a single one. This will give you a chance to pay a single payment to a lender with one interest rate. You may be able to secure a payment term with a lower interest rate. Plus, a single monthly payment will ensure that you do not need to remember due dates or worry about penalties.
Prioritize Your Debts
You must prioritize your debts and make sure to pay off the most expensive ones first. The higher the debt, the more the interest rate you will be paying. By getting rid of that debt, you can save a lot of extra money that you would have otherwise kept paying at a higher interest rate. Now, you can use this spare cash to pay off other smaller debts.
It would be best to get rid of all bad debts first, such as outstanding credit card balances. So, if you have a credit card debt or an auto loan, you must pay these off first to avoid paying higher interest rates.
Clearing Smallest Debts in One Go
If you have small debts, you can clear them by making single or bigger payments in subsequent months, then get rid of them. This will free up the money you can use to pay off other larger debts faster. This is a great way to lower your debt obligations if you cannot afford to pay off larger debts sooner.
Always Pay More Than Minimum Payment
While minimum payment gives you a cushion to survive, it piles on more debt as you have to pay a higher interest rate on the remaining balance. This is especially true if you have credit card debt. Therefore, you must always pay more than just paying minimum payments.
If you have a home mortgage, make regular payments and put extra cash towards the principal amount to bring the outstanding balance down over the years. The lower your remaining principal amount, the lower your repayments and interest rates will be.
Use Your Balance Transfer
You can use a balance transfer to move your debts by switching accounts. For instance, you can refinance your home mortgage and get better rates due to lower introductory rates offered by the lender. However, you may not be able to do this with credit cards. Being in debt will hurt your credit score, making it difficult for you to get a new credit card.
No More Credit Card Use
If you are bad with money management, and overspending is something you are guilty of, then stop using a credit card. The best way is to stop carrying your credit card around. All you need is to break the habit by removing the source of temptation in your pocket. Not having a credit card will help you resist that innate feeling of spending on things that can wait.
Using Debt Management Tools and Services
You can use a debt management tool or service. For instance, you can try wealth management tools by Personal Capital to create a financial management plan as per your needs. Personal Capital will also hook you up with an advisor who will create a plan customized to your situation.
Get Rid of Unwanted Subscriptions
Check the budget and expense list you made earlier. Does it contain any subscriptions that you barely use or don’t use at all? If yes, then it is time to cancel these subscriptions. No matter how small the amount, why pay for something you don’t use? In the long run, you can use all that extra money to pay your debts faster.
So, time to say goodbye to unnecessary gym memberships, magazines, and online streaming services subscriptions.
Selling What You Do Not Need
You may be sitting on loads of cash in your home. So, another way to pay off debts is to generate extra money from within your home. Any unwanted gifts, clothing, jewelry, etc., can go. You can take pictures of the item and sell them on Amazon and eBay.
There is a huge market for used merchandise these days. Therefore, chances are that you may end up making some money from what you already have.
Paying off your debts will take a lot of hard work, dedication, and resilience. However, once you are on the right track or get out of debt, don’t fall back into your old habits. Always remember that those bad habits got you into a financial mess in the first place.
By changing your money management skills, you will be able to beat the debt and never find yourself in the same situation again.
Getting into debt can be stressful, especially when the economy is facing downtime and inflation is at an all-time high. If you are struggling with your debt and wondering if there is a way to pay them off, you can follow the practical tips mentioned above. If you have more than one household income, both earners must be on the same page and work together to pay off their debts.