#10 Steps to Freedom from Debt Within a Year
Getting rid of debt quickly isn’t easy. This is especially true if you earn just enough to let you survive and nothing more. With today’s inflation, things have only gotten worse. Try these 10 easy steps to get free of debt within a year.
But even with the economic environment nowadays, you can still beat debt with a few habits. Fortunately, plenty of ways exist to get out of debt that won’t overwhelm you. It starts with assessing your budget and making the right decisions. Of course, paying off all of your debt will not happen overnight. You have to make a debt reduction plan. A step-by-step procedure will help you get to where you want faster than you normally would. Your chances of success will increase even more if you set a timeline to reach your goal.
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How Debt Impacts Your Life Negatively
Being in debt can make qualifying for other loans more difficult. It can also lead to higher borrowing costs. Debt is so detrimental that it can even prevent you from landing your dream job.
Borrowers with a high debt-to-income ratio find it very hard to qualify for loan products. Additionally, if you have high debt, your credit score can be lower.
People with high debts and low credit scores are also perceived as riskier by banks. As a result, you are likely to receive higher interest rates on debt products too, if you have a lot of debt. You could even be denied financing altogether.
Furthermore, if your dream job is in law enforcement, the military, or financial services, you can be rejected based on your debt. For these types of jobs, employers conduct a thorough credit check when you apply. If you have too much debt, you are seen as someone who is statistically more likely to accept bribes. Hence, you are rejected.
How to Get Rid of Debt in 10 Steps
1. Revisit Your Budget and Squeeze More Savings Out
There are two straightforward ways you can avoid debt and pay it off quickly:
- Earn more or,
- Spend less
For many of us, it may not be possible to take a part-time job or start a side hustle to earn more. But what all of us can do is readjust our budgets.
Start by looking at each item in your budget. Look at everything that you spend money on. Arrange every expense based on its importance. Is it a need or a want? After that, you should highlight the expenses that you can reduce or cut off.
Doing this will help you free up some extra money to pay off your debt.
2. Avoid Debt with Debt Snowball
The debt snowball method asks you to make the minimum payment on all your debts except for the smallest one. For the smallest debt, you will pay as much as you can.
This way, you snowball payments toward your smallest debt. Consequently, you will pay it off quickly and move on to the next smallest debt.
This is a great technique as it helps you focus on one debt at a time instead of multiple. So, you can build momentum and stay on track. As you see progress, that will motivate you, even more, to keep going.
Remember that if you have a loan with a very high-interest rate, pay that off first. In that instance, a debt snowball should be avoided. You should work to pay these off first rather than the smallest loan.
3. Negotiate a Lower Interest Rate
It is possible to negotiate a lower interest rate with your creditor. You will be surprised how many creditors are willing to reduce your interest rates based on your payment history. Your account standing will also help immensely here.
For this to be successful, remember to maintain a good rapport with your creditor. Having a good relationship with them can go a long way in bringing the interest rate down.
4. Pay More than the Bare Minimum
Go through your budget and decide how much money you can put toward your debt. Decide to pay more than the minimum allotted amount. This will save you money on interest and help you get out of debt faster.
Paying more than the minimum reduces the principal balance on your credit cards quickly. You can schedule the payment before the due date in the current billing cycle. Or, you can add it to the monthly minimum payment.
5. Automate Your Payments
If you want to be free from debt in no time, use technology and automation in your favor. Through automated payments, you can put your debt payments on auto-pilot.
Use automatic transfers from your bank account to your credit card. Another thing that you can do is activate automated reminders for your payment dates. Turning on reminders is especially helpful if you have multiple payments to make.
You should also use a debt management app to progress in your debt elimination. A budgeting app is also a great place to start in avoiding debt in the first place.
6. Consider a Debt Consolidation Loan
Debt consolidation is when you combine your multiple debts into one new loan. This is a great way of paying off your debts a lot quicker than you normally would. However, to get a consolidation loan, you will need a good credit score.
A debt consolidation loan offers a low APR on your debt. This way, you save money on interest and pay off your debt faster.
7. Use Savings to Pay Debts
It is okay to dip into your savings sometimes to pay off debts with high-interest rates. Using cash reserves to repay debt is a prudent decision. It will stop you from accumulating interest on large balances.
Yes, it can be comforting to have the security of savings in your bank account. But the truth is, those funds are not working for you if you have debts to pay off.
This is not to say that you should deplete your entire savings. But use a portion of your savings to eliminate debts.
Further reading: How to Build Your Emergency Savings Fast
8. Sell Preloved Items You No Longer Need
We all have things we can do without. Surely, you do as well. If you have something that you no longer use or have extras, why not sell it? The money you make from selling preloved items can then be put towards paying your debt.
9. Set Goals
Once you have a list of debts and a budget, you can now form debt repayment goals. When you have a budget, you know exactly how much you can contribute towards debt repayment each month. This allows you to roughly estimate how long it will take you to get out of debt.
Putting all this in mind, you can then set goals. You can set a final goal and a few periodic goals to get to that final goal. The periodic goals will serve as your motivation to reach the ultimate aim of paying off your debt.
Further reading: How to Achieve Your Money Goals
Pay Yourself First!
Set a financial goal for yourself this year.
You’ll be able to increase your savings with the help of these FREE Money-saving templates.
10. Put Any Extra Money Towards Your Debt
Bringing in extra money will not only help you pay off debt faster but also avoid it in the future. Subsequently, you may want to consider getting a second job or working longer hours.
As mentioned earlier, you can also consider selling the items that you don’t need anymore. This could earn you some money to put toward your debt in the short term. Another thing it can do is lower your expenses in the long term as it will allow you to put more money toward debt repayment each month.
Conclusion – How to Get Rid of Debt in 10 Steps
It can be difficult to break the cycle of debt. But by following the 10 steps above, you can start making moves in the right direction. Once you start following the above techniques, your overall financial health will improve as well.
Remember to make sure to understand why you got into debt in the first place. You should then prevent yourself from repeating the same behavior
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