Becoming debt-free isn’t going to happen overnight. Especially if you are in the lower-income spectrum. But, a debt repayment strategy that doesn’t harm your credit score severely and lets you go debt-free in minimal time can be developed with these nine tips.
Most of these tips can be implemented without any outside help. But, in a dire financial situation, consulting a financial planning company won’t hurt.
Being debt-free is what everyone wants. But how can you really achieve it? In this article, we will go into details on the tips on how to live that debt-free life.
1. Increase Income Through Side Hustles
Increasing your income through side hustles, naturally, will help you repay your debts faster. Although the strategy depends on variables like your skillset and career status, spending weekends to earn a little extra might present an opportunity to go debt-free sooner.
Your side hustle doesn’t need to be a second job. Working part-time or freelancing can also be a lucrative source of income if you have enough free time to sharpen your skills and deliver quality work.
The side income may not seem much at a glance, but an additional $500 per month will allow you to pay off a debt of $6000 within a year.
2. Increase Debt Repayment
Decrease your savings to increase debt repayment. You can either start with repaying a portion of small loans or start with repaying larger loans. Increasing debt repayment can also be initiated by increasing the income through side hustles.
A larger chunking debt often piles up with added interest amounts. Shying away from breaking your savings to pay a portion of it could be detrimental to your financial stability.
While it’s reassuring to have a significant amount of cash sitting in your account, the lower than ever interest rates won’t help eliminate the interest, let alone the principal. While doing so, don’t spend all of your savings away to pay the debts too. You might also need to have some spare cash for emergencies.
3. Reduce Spending
You’d be surprised by how much you can save by cutting insignificant costs continuously. The occasional dine-outs, the weekend parties, and the shopping mall visits can add up to thousands of dollars sooner than you can imagine. To save more to pay off your debt within a year, here are some tips that you can follow:
- Cook for yourself. Avoid getting out to eat too often. Avoid the random food deliveries too. But if you do, consider cheaper local restaurants.
- Avoid shopping malls and online stores as much as you can. Shopping malls are designed to make you spend more. Sleep on the things that you want to buy, and reconsider the next morning.
- Cancel club memberships. Recurring payments can add up to the cost significantly.
- Use public transits to work. Avoid getting in your car as much as possible. You’d be surprised at how much gas your car consumes while sitting in traffic.
- Consult Chunk Finance to manage your spendings and give a detailed report on where you can save for debt paydown.
- Always try to pay through debit cards and cash. Don’t spend the money you don’t have by using a credit card.
- Shop with a list and stick to it.
By reducing the expenditure, you should be able to save enough to pay off portions of the debt every month. Your focus should be to not add any more debts to the already huge pile.
4. Consider Debt Pay Off Strategies
Two strategies are considered by experts when you are required to pay off your debt in minimal time. They are: debt snowball method and debt avalanche method.
Just like a snowball when added more snow to it, debt grows larger and larger. However, it can be paid off by reducing it slowly but steadily. In the debt snowball method, the smallest loans are paid first while repaying the minimum amount to the larger debts. Once the smallest loan is paid off, you take on the next smallest dollar amount. By following this method, you’d gradually have lesser interest payments and more money to spend on the next minimum loan.
On the other hand, the debt avalanche method recommends that you erase the loan with the largest interest first. The principal amount doesn’t matter in this method. If you have a credit card loan that attracts a 19% interest rate, it needs to be prioritized before repaying the student loan with a 5% interest rate. Even if the monthly minimum amount is deemed lower in the credit card debt, you must follow it to gain a significant advantage over the larger loans.
The strategies provided can be adapted as needed. When faced with daunting debt, consulting professionals for guidance is wise. Debt relief companies can be beneficial in your journey to be debt-free. No matter where you are, assistance is available. For those in Miami, for instance, numerous Florida debt relief programs offer tailored support to your unique requirements and state laws.
5. Cash Your Life Insurance
Cashing your life insurance can be a viable debt payoff strategy if you don’t have beneficiaries like children or a spouse to pass down the cash to. It allows you to pay off the larger debts and have more cash in hand every month to gradually pay off the smaller debts.
Again, this method only works if you don’t have beneficiaries or are enjoying whole life policies. In term life insurance policies, the lump sum can’t be withdrawn to go debt-free. However, if you have beneficiaries, cashing out a portion of the life insurance, if possible, could be a better scenario planning for your debt.
6. Consider Credit Card Balance Transfer
A credit card balance transfer is when you transfer your outstanding dues to a new credit card. As credit card balance transfer deals typically come with a zero-interest fee for a year or so, you eradicate all credit card interests for that time being.
By eliminating high interests on credit card dues, you free up significant cash flow and allow yourself to spend the additional money on larger debts or credit card dues.
7. Consider Checking Statute of Limitation Laws
Don’t pay off your old credit card bills that are more than 7 to 10 years old if you aren’t legally obligated to do so. The statute of limitation law eliminates the obligation to erase the debts and prevents the debt collectors from extracting the amount if you have no money to pay it off.
Although before jumping to conclusions, consult the statewide rules regarding outstanding debts. Either way, consider paying off the newer loans before the older ones.
8. Loan Settlements
Loan settlements are considered one of the last resorts in a debt-payoff strategy. In a loan settlement meeting, you negotiate with the creditors to cut off the principal amount to something that you can manage. This method is considered a last resort because of the severe damage it does to your credit score and the sheer cost of hiring a debt settlement company.
9. Declare Bankruptcy
Bankruptcy can allow you to start afresh. But the process is lengthy and mentally exhausting. And in many cases, you might also be prohibited from filing for bankruptcy depending on your financial status.
Bankruptcy does extended damage to your credit score. And even after filing, you may still need to follow a debt repayment strategy imposed by the court.
The Bottomline
These nine tips will help you eliminate your loans within a year to live a debt-free life if you can cut off your monthly spending, earn a little more, and follow the payoff strategies religiously. And if it helps, you can make use of a budget tracker so you can keep your spendings and savings as planned.
It’s surprising to see that there are strategies that you can implement and use to your advantage. While there are some that could be your last resort to go totally debt-free.
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