Debt can be very stressful and heavy when one has no plan. Clearing debt as fast as possible is a smart financial move that leads to peace of mind and financial freedom. Below is a list of strategies to help you achieve financial freedom.
1. Create a Budget
You need to start by curating a very comprehensible budget that helps you track your revenues and expenditure. Assess and identify areas where you need to cut back and allocate more funds toward paying off debts.
2. Cut Expenses
Having a luxurious life at the cost of being in debt is not a smart financial strategy. Learn to live within your means and avoid spending on things you don’t need. To quickly pay off your debts, review your current budget, identify areas where you can reduce your expenditure, and learn to manage your finances.
3. Avoid New Debt
Have a list outlining all your arrears. Plan how you plan to clear them. At all costs, when repaying existing debts, don’t make the mistake of taking up new ones, as it’ll only worsen and strain your financial situation. Stay focused on your goal of clearing your debt.
4. Use the Snowball Method
This is an effective method where you start clearing the small loans first and then making incremental payments towards your huge debts. Once you clear the small loans, roll over the amount to the next small loan and keep doing that. The result is a snowball effect that’ll ultimately knock off all your debts.
5. Use the Avalanche Method
The avalanche method involves first paying debts with the highest interest rates. You first focus on clearing these high-interest loans off as you make small payments to those with the lowest interest.
6. Sell your Assets
MarketWatch estimates that in September 2022, the sales for luxury vehicles made up about 18% of new cars sold. If you have a second car you don’t need, or a luxury car that’s costing more to maintain, sell it. Also, consider other items in your house you have no use for, such as electronics and collectibles. Sell them and use the proceeds to clear some of your debts.
7. Increase your Income
About 18% of your utility bill is associated with water heating, according to Energy.gov, making it the second-highest expense in your home. Looking for new sources of income can help mitigate some of these expenses. Some ideas you can consider are a part-time job, freelancing, or selling household items you may not need. Set aside one income to sort utilities and the other to save or clear off debts.
8. Use Windfalls Wisely
If you get discretional bonuses, gifts, or tax refunds, resist the urge to spend that money at all costs. With the U.S. Department of Energy claiming that heat loss and heat gain through your windows accounts for 20 to 35% of your household energy consumption, it pays to find ways to mitigate this expense. You’ll have enough to settle your energy utility bill by diverting this extra money towards debt repayment.
9. Join a Debt Management Program
Enroll in a program that helps with debt management offered by various credit counseling agencies. They can help you manage and create a favorable payment plan and negotiate with creditors. On negotiation, if you have a good track record of repayment, they can help you negotiate lower interest rates. As a result, more of your payments will go to clearing the principal balance and not paying off accrued interests.
10. Debt Consolidation
Consider combining your higher-interest loans into one or using a single credit card with lower interest rates. This is a smart way to streamline your payments while saving you money on accrued interest.
11. Stay Motivated
When paying off arrears or loans, staying focused can take a lot of work as extra expenses always arise. Stay focused on your goal, celebrate milestones you may have set for each debt paid, and maintain the discipline required to regain your financial freedom and peace of mind.
Select a method that works for you and align it with your goals, considering your financial situation. Stay consistent, stay focused, and be patient. Over time, you’ll see genuine progress as you inch closer to the other side of debt – financial freedom!