Paying off debt for good is easier than it sounds when you take stock of what you owe, how you racked up that amount, and make some serious changes to pay it off and remain debt free. Almost everyone has some form of debt, and these days a lot of people have a lot of debt, but it doesn’t and shouldn’t have to be that way. Living debt free is not only smart, but it is the best thing you can do for your future and the future of your loved ones if you want them to benefit at all from your personal success.
These are five keys to paying off debt for good and leading a life where you live within your means and create wealth instead.
Assessing All Your Debt
One of the many reasons people fail to get their debt under control and paid off is because they are not being honest with themselves about how much debt they actually have. It is often easier to ignore debt than take it on and deal with it. For this reason, one of the main and most important keys to paying off debt is to get it all out on the table and assess each and every bit of debt you have. Tally up the entirety of your debt, find out what the interest rate on each debt is, understand how much you are paying and how long it will take you to pay off what you owe at the rate you are going now.
Now that you have a clear picture of how much work you need to do, it’s time to divide up your debt and make a plan to pay it off.
Avoid Accumulating More Debt
While you are working to pay off the debt you already owe, avoid accumulating more debt regardless of the reason. Do not pull new credit cards, do not make any large purchases that require you to take on a line of credit, do not sign for anymore personal loans. This is really important and the key to working towards being debt free. Our first instinct to acquire things is to purchase it the moment we want it on credit instead of budgeting and saving for the items we want or need.
The other big factor in this step is to avoid racking up more debt on the lines of credit that we already have open to us. Do not put monthly purchases and expenses on a credit card, even if you have an available balance. Instead pay for those purchases upfront and in full. When you put these purchases on a credit card you end up paying more for them than they are originally worth.
Doing this over several months or even years not only works to help you pay off the debt you already owe, but it conditions you to avoid taking on new debt once you have paid off everything you do owe. This new mindset conditions you and changes your spending patterns for life, which is the best step towards living a debt free life that you can take.
Create and Stick to a Budget
One of the main things folks who are debt free do is create and live off a budget. Unfortunately budgets get a bad name for being restrictive and limiting, but they can actually work the opposite way. The purpose of a budget is to help you see where your money is going, curb any frivolous spending, and put the bulk of your income into savings and paying down debt. The outcome of living on a budget means that you are creating a better future for yourself and working to create the ability to afford those things that are important to you.
The trick to creating a budget that works for you is to allow for room to make mistakes and to adjust the budget as you go. No budget is a perfect fit the first time you create it, so be forgiving with yourself and adjust. Simply being able to see where your money is going can make such a huge difference in preparing yourself to start paying down debt and actually getting it done.
Attack Your Debt
There are so many methods and ways to tackle your debt in order to pay it all off entirely, but the best one according to financial advisors is known as the snowball method. This method includes paying off the smallest debts first, and then moving on to the next according to size. Pay the minimum amount on each debt each and every month as you normally would, but use the bulk of your budgeted debt reducing funds to focus on paying off a single debt at a time. Once one bill has been paid off completely, use all those funds to pay off the next bill, which should be a higher payment amount now that you are putting together the debt funds and the minimum payment.
Stay on Track
Progress sometimes leads us to celebrate or to make what we consider harmless choices because of how small they are. No debt, no matter how important or small, is worth the cost of your financial freedom. Stay on track with the choices and hard work you have done and refuse any new debt. Only purchase those things you can actually afford, or that can be purchased through budgeting and saving. Living this way is life changing and will lead to you building wealth at a much quicker pace than you ever expected. From here on out, you leave behind a legacy of saving instead of a legacy of spending on items that you likely do not need.