Settle your debt once and for all with this step-by-step guide

Attaining financial freedom is a goal for most people. Generally, it means having enough investments, savings, and cash on hand to afford the lifestyle we want for ourselves and our families- and a growing nest egg that will enable us to retire or pursue the career we need without being driven by earning a specific amount per year.

Sadly, too many of us fail to attain it. We are burdened with increasing debt, profligate spending, financial emergencies, and other issues that thwart us from attaining our goals. We experienced unexpected events, like the pandemic, that overturn our plans and hurt the safety nets we tried to weave for ourselves and families.

Habits can put you on the right path

Set life goals

What does financial freedom mean to you? A general aspiration for it is too vague a goal, so be particular. Note down how much you should have in your bank account, what the lifestyle entails, and what age this should be attained. The more particular your goals, the higher the possibility of achieving them.

Next, count backward to your present age and develop financial mileposts at regular intervals. Note it all down neatly and put the goal sheet at the very beginning of your financial binder.

Understand your debt

All debt is not necessarily bad debt. A loan assists you in getting a high-paying job by increasing your possibilities of earning a degree. At the same time, obtaining a loan to own a home or begin your own business is not bad. Think carefully about what type of debt you have and how bad it is.

Limit the costs of student loans

On standard, most people are carrying about $27,000 in student debt- that is a lot of money. Luckily you can save more than a thousand dollars by just refinancing your student loans. On the other hand, you can also think about getting your student paid off by an employer or loans forgiven if you need to get rid of the debt in your academic career entirely.

Create a budget

Creating a monthly household budget and sticking to it is the best method for guaranteeing that all bills are paid, and keeping savings on track. It is also a regular routine that reinforces your aims and bolsters resolve against the temptation to splurge.

Pay off credit cards in full

Credit cards and similar high-interest consumer loans can be toxic to wealth-building. Make it a habit to pay off the full balance per month. Mortgages, student loans, and the same loans generally have much lower interest rates; paying them off is not an emergency. Paying on time is and will create a good credit rating.

Create automatic savings 

First, pay yourself. Enroll in your employer’s retirement program and make full use of any matching contribution benefit. It is also a good idea to have an automatic withdrawal for an emergency fund. This can be tapped for unexpected expenses and an automatic contribution to a brokerage account.

The funds should be pulled the same day you get your paycheck, so it never even touches your hands, avoiding temptation entirely. Nonetheless, keep in mind that the recommended amount to save is highly debated. In some situations, the feasibility of such a fund can be a question.`

Pay off debts with a consolidation

You have possibly heard of debt consolidation before; however, did you know it can be one of the best ways to control your expenses? Typically, debt consolidation is a good idea when the loan you can get will help you reduce the costs of your loan in the long-term. Besides, debt consolidation can also be useful if you require to cut down your monthly repayment. 

Speed up paying your mortgage

A mortgage is the most costly loan you will ever have. An early payoff will give you more financial freedom; however, a low-interest rate might mean that it makes more sense to invest your cash, instead of paying off your mortgage early. Decide if you would like to get rid of your mortgage fast or not, then look at making extra principal payments.

Watch your credit score

Your credit score dictates what interest rate you are provided when refinancing a home or buying a new car. It also affects seemingly unrelated things, like life insurance and car insurance premiums.

The concept is that someone with reckless financial behaviors is also likely to be careless in other areas of life, like drinking and driving. This is why it is essential to get a credit report at regular intervals to ensure that no erroneous black marks are ruining your good name.

Pay the worst debts first

Each kind of debt can be hard to manage, and a little overwhelming at times. Whereas there are various approaches to managing debt, ensure that you pay off the debts that have the biggest effect on you emotionally first. For example, pay off the loan you took out from your in-laws before you begin worrying about your credit card. Create a hierarchy of the essential debts you require to pay and work on at a time.

Apply the snowball method

When you apply the snowball method for dealing with debt, you use the majority of your accessible money to manage debt repayment on one loan and then give minimum repayment. When the loan is paid off, you can manage the next loan on your hierarchy of most essential payments and so on, till you are entirely out of debt.

Negotiate loan amounts and interest rates

A lower-than-average interest rate will help you pay off the credit card bills you have built up faster than usual. Simply ask your provider if they are willing to move you to a better rate. If you are successful with your request, you can save yourself a great deal of money and stress on your bills.

Find extra money to pay off debt

Sometimes, it is possible to get extra money to throw at your debt, by selling things you do not require and working a few overtime hours. Earmark the found money in your life to your debt repayments, instead of using the on luxuries.

Make investments and pay off debts at the same time

Managing your finances can be sophisticated. You want to get rid of your extra debts; however, you also need to think about emergency funds, and you do not want to miss out on things such as compounding interest to assist you in earning better retirement savings. The best part is that it does not necessarily have to be an either-or situation. You can invest and pay off debts simultaneously; all you require to do is select the right funds.

Pay down debt with your tax refund check

Whereas it is tempting to splurge on a high-ticket item or go on vacation with the tax refund check, a clever money move would be to pay down some if not all of your debt. Consider the value of decreasing your monthly payments with a single lump sum debt payoff plan. You will enjoy the benefits of a lighter debt load over the whole year and for years to come rather than enjoying the short-term satisfaction of purchase. 

Sell items for cash

Put together a list of things that you can sell on Craigslist, eBay, or at a garage sale. Drumming up some additional money by selling items you no longer require or are ready to part with- and using the proceeds to pay down debt- can assist your rapidly lighten your debt load.

Consider cashing in your life insurance

Cashing in your life insurance might be a viable debt payoff plan since it will give you a chance to quickly pay down more substantial amounts of debt. 

If you are drowning in debt and do not have beneficiaries that require you to benefit from your life insurance policy- for instance, children or spouse- then it may make sense to use those funds to pay off debt.

This plan does not apply if you have a term life insurance policy. The plan only works for those with whole life policies that have established cash value. It should be noted that even if you do not have beneficiaries, you might be able to tap into a part of the cash value of your whole life policy, obtaining cash for debt reduction and at the same time still leaving some life insurance proceeds to your loved ones.

Do not add to the debt

Ensure that you are not adding to your debt by constantly living beyond your means. Think carefully about your budget and look for ways to cut your spending, not so that it is simpler for you to pay off your current debts; however, you can also make sure you are spending more than you should be in the long-term.

Stick with it

You will have to keep on top of things to ensure that you reach your ultimate goal of clearing what you owe entirely. After you have a plan in place and get into the practice of thinking before you spend, things can appear more manageable than they feel.

Having said that, if you feel you are struggling with unmanageable debt and you can not see a way out, it is essential that you reach out to a free advice agency like Citizens Advice Bureau who will be able to suggest alternate means by which you can manage the debt.

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