Being in debt—good or bad—can put you under a lot of stress. While good debt like home loans at least help you generate some income, bad debt like credit cards or personal loans can only lead to financial ruin without proper management.
To achieve financial stability and freedom, it’s important that you remain debt-free for the foreseeable future. But, things are easier said than done when it comes to keeping a tab on finances.
If you’re presently feeling overwhelmed and are running out of options because of debt, it’s vital that you take up controlling measures to go debt-free right away. Generally, eliminating any kind of debt takes a lot of time and effort. However, you can go debt-free quickly if you double up on your efforts.
Wondering what you can do to stop your debt from reaching unmanageable levels?
Just follow the simple 7 steps to go debt-free quickly:
1. Evaluate Your Finances
It’s arguable that no debt can be good. However, if you’re borrowing money to buy property whose value will increase with time, wouldn’t such debt be considered better than credit card bills or personal loans? To begin with, ascertain how much money you owe in total and how much you’ll need to pay including all interest charges.
Then, consider your current income as well as your monthly commitments and figure out how long it would take you to pay off all the loans. Now, you’ll need to devise a repayment plan that falls well within this time period.
2. Stop Borrowing Money
A big step in going debt-free is to make a conscious effort to stop borrowing money. No matter what your spending habits or lifestyle needs are, it’s important that you don’t add to your debt any more.
3. Put in Efforts to Save Money
It may seem counter-productive to try and save money when you feel the need to put in everything to settle existing debt. However, starting a small emergency fund or savings account can be beneficial in the long run.
To put things into perspective, when you’re in debt, there’s no money for you to fall back on in case of an emergency – medical expenses, educational fees, or even vehicle repairs. Such unexpected expenses can invariably lead to you borrowing money again.
But, if you’ve saved money, you can use the funds for emergencies or as a lump sum payment for one of the loans over time.
4. Organise Your Debt Repayments
This step involves you putting all your important financial and debt-related information in one place. From the name of the creditor and the amount borrowed to the interest rate and repayment amount, it’s vital that you organise all such data.
With this information in hand, you can keep a track of all repayments and see how you’re progressing on the road to being debt-free.
5. Devise a Repayment Strategy
The debt-snowball method is one of the popular ways to tackle debt payments. In this method, you organise all your repayments starting with the one carrying the smallest balance, irrespective of what the interest rate is for each payment.
Thereafter, you start making minimum payments on all debts except the one carrying the smallest balance. Once you pay off the first one, you use that amount to pay off the next smallest loan.
Another method you could try is known as laddering. It involves arranging debt payments in decreasing order of the interest rate. Mathematically, this method should help you save more on interest. Either way, it’s vital that you follow your strategy at all times.
6. Consolidate Your Debt
If you’re dealing with high-interest credit card payments, a balance transfer card would be a good option to take up. Just apply for a new credit card with a low balance transfer rate.
You can transfer outstanding balances from all your other cards to this card for low-interest monthly payments. Most importantly, never use this card for anything else.
7. Try Adding to Your Existing Income
There are two ways to look at adding to your existing income. Firstly, cut down on all those unnecessary expenses that you could easily do without. Secondly, try your hand at working additional hours in your line of work or another.
This way, you’ll have more spare money adding to your existing pool of savings. You could also use a part of this money for low-risk investments and ensure guaranteed additional income.
Being frugal and never losing hope is key to making all these steps work. Follow these steps diligently and you’ll see results in no time. If you’re still unable to manage your debt, talk to a financial planner or your debt management agency.