Is paying off debt one of your top priorities? Are you sick and tired of worrying about upcoming payments, fees, and the growing balance on your monthly statement? Are you looking for some practical tips for paying off debt? You’ve come to the right place – but we’re not going to sugar coat it for you. Paying off debt is, for most of us, a massive undertaking that requires making some real sacrifices.
To help you learn how to pay off debt in a way that works for you, here are our top tips.
1. Know what you’re dealing with and set a goal
One of the best ways to kick-start your debt-free journey is to sit down, work out how much debt you actually have, and set a goal for yourself. When you have a clear picture of the scale and scope of your debt, you can work backward to work out how much you’ll need to set aside each month.
Then, set yourself a goal. For example, it might be to pay off your credit card before Christmas. This goal will help keep you motivated, even when you feel tempted to grab the plastic and splurge.
2. Avoid creating more debt
If you’re wondering how to pay off debt, know this: it’s going to be much, much harder to rid yourself of potentially crippling debt if you’re continually adding to your balance. So, if possible, put down the credit card. If you find it difficult to resist temptation, you might even like to cut them in half or give them to a family member to keep safe.
3. Create a realistic budget
You’ve committed to paying off debt. Now, you need the cash to make that happen. For this, a tight budget is critical.
First, work out your monthly income. Then, determine how much the essentials cost you – this includes things like rent, food, utilities, transport, and childcare. Subtract your essential costs from your monthly income, and you’ve got what we’ll call your ‘spare’ funds.
It’s worth thinking about how you usually spend these ‘spare’ funds. Are you in the habit of eating out a few days a week? Do you pay for streaming services or gym memberships that you’re not using? See where you can cut back and allocate that money toward paying off your debt.
4. Pick up a side hustle
The gig economy has revolutionised the way many of us work. If you have the time, use this to your advantage. Another great way to raise funds is to sell your unused clothes and belongings. Look for clothes you bought but never wore, furniture you no longer need, even kids’ toys that your little ones have grown out of.
5. Consider debt consolidation
Facing a significant amount of high-interest debt, like credit card debt? A consolidation loan may be a good option. Put simply, a consolidation loan groups all of your debt into one, lower-interest loan. That means one monthly repayment and a lower interest rate – these factors should help you become debt-free faster.
6. Cut extra costs (for now)
You will want to sit down with a pen and piece of paper and map out all of your expenses. This means writing down your car payment, rent, and utilities. And it also means writing down how much you’re spending on extra items, like cable, clothing, and eating out. When you’re trying to save money, cutting down will have to be the name of the game for a while. “Luxury” costs, like cable, may have to get shut down and potentially swapped out for a much cheaper, online movie service. Get creative at home and cook new recipes instead of eating out.
As you add a new item to the list, make sure to ask yourself if this is an item you can do without for a few months. If the answer is yes, then you will want to cancel that subscription and avoid the shops.
7. Close or freeze credit accounts
If you have multiple credit accounts, consider closing the ones that don’t have a remaining debt. Closing or freezing accounts stops you from being able to go out and use that card. One of the major ways a person can save money to get out of debt is simply cutting off the source!
8. Work with cash
Cutting down on how much you spend really depends on how well you cut yourself off from cash sources. One way to do this is to use your realistic budget to withdraw X amount from your checking account per week– in cash. Spending money is a lot more difficult when you have to pull out the bills in person to count off your charges. Similarly, you can try using the “envelope system” to really break down the cash budget that you have in your hands.
For this strategy, you will label an envelope something you’ll be spending on. You’ll end up with envelopes titled gas, food, going out, etc. The goal is to withdraw your weekly budget and split that into each envelope as you’ve budgeted. As you spend, you’ll be very aware of how much is left in each envelope and what day of the week it is!
9. Contact lenders and work with them
As you work on figuring out how to get out of debt, don’t be a stranger– reach out to your lenders! Once your lender knows of your situation, they would be able to help to the best of their abilities. Maybe this means lowering your interest rates or putting together a repayment plan. As a whole, you can save a little bit of money if you take the time to talk to the right people.
Remember, paying off debt takes time
Ridding yourself of debt is a long process. But don’t give up. Freeing yourself from monthly repayments will be a huge weight off your shoulders – we guarantee it.
Disclaimer: Please be aware that Cigno Loans’ articles do not replace advice from an accountant or financial advisor. All information provided is intended to be used as a guide only, as it does not take into account your personal financial situation or needs. If you require assistance, it is recommended that you consult a licensed financial or tax advisor.