Becoming debt free takes sacrifice and hard work but is well worth the challenge. Just recently, we dumped $18,000 of our debt and although it was a tough sacrifice, it is one I am glad we made. These four tips are ways that my hubs and I use on our journey towards debt freedom:
Create a Debt Pay Off Plan – The first step in becoming debt free is to determine your debt pay off plan. You will want to list out your debts, the balances owed, interest rates, and payment dates. Looking over your monthly budget, determine how much extra you can afford to pay towards your debt. Once you know how much money you can pay in excess towards your debt, you will be able to determine which debt is the best to pay off first. You could choose to pay the debt off that has the highest interest rate first or you could use the debt snowball method. In the snowball method, you pay off your smallest debt first and work your way up to the largest. (You can download my debt snowball tracker template in excel here: Debt Snowball Tracker Template)
Stop Taking on New Debt – Once you have decided to head down the road to becoming debt free, you will need to be diligent to not take on any new debts. This means that you will not be able to purchase a new car or home using an auto loan or mortgage. It also means that you will not be able to apply for any new credit cards, regardless of the amazing promotions they may have going on. You will also need to completely stop using your current credit cards. Freeze them, cut them up, or close them, whatever you have to do in order for you not be tempted to use them.
Lower Your Interest Rates – Regardless of the method you decide to use in paying off your debt, you should try to reduce your interest rates as much as possible. The lower your interest rate, the sooner it will be for you to pay off the principle balance. Most credit card companies are willing to lower your interest rate in order to not lose you as a customer. Instead of closing your card right away you may ask them to lower your interest rate in order for you not to close your account.
Pay More than Your Minimum – In order to pay off your debt, you will need to pay more than the minimum payment each month. In your debt pay off plan, you determined how much you are able to pay in excess each month. This is the amount that you will pay above your minimum payment towards whichever debt you decided to start with. Make sure you write on your checks how much you are applying to the principle or include a memo with your electronic payment. This will ensure that your excess payment is applied towards the principle rather than the interest.
Becoming debt free can be a challenge but it does not have to be an impossible one. Using these tips can help make becoming debt free easier and more feasible.
Way are the ways that you have/are using to make becoming debt free easier?
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