Six steps to debt freedom(Read article summary)
Tackling debt isn't easy, especially at the beginning. But a few key adjustments to your budget can send you well on your way to a debt-free paradise. Here are six cost-cutting measures to help eliminate your debt quickly.
With careful budgeting, Brian Brandow, of Long Island, New York, paid off $109,000 of credit card debt in 50 months. But it wasn’t easy — especially in the beginning.
“The first couple months were tough,” the 44-year-old father of three said. “You have to take kids to practice and you feel tempted to spend $30 or $40 on a quick meal. But you have to save that money and eat at home.”
Before tackling the debt, Brandow used to use his credit cards to cover anything he couldn’t afford outright, including family vacations. But after maxing out five credit cards, his application for a credit limit increase was denied, and there was no more money left to borrow. That’s when he started focusing on paying off the debt as soon as possible. Brandow’s wife, Lynn, returned to the workforce. They canceled subscriptions, trimmed their grocery bill and stopped going on vacations.
Having no more debt is a huge relief, he says.
For many Americans like Brandow, debt is a huge issue. As of December 2014, NerdWallet found that the average outstanding credit card balance was a whopping $15,611. But instead of letting debt rule your life, work on getting rid of it. Here are some ways you can create a plan to eliminate your debt quickly:
Be a lean, mean budgeting machine
A budget is a roadmap to debt-free paradise. It takes the guesswork out of paying back debts. Whether you use an app, an Excel spreadsheet or a paper ledger, allotting funds for expenses and tracking your spending can help you gain a better understanding of where your money is going and where you could make adjustments.
Start a budget by looking through your monthly expenses and cutting out the things you won’t miss, such as unused subscriptions, eating out and expensive groceries. Once you have some practice living on a tighter budget, consider cutting the larger things, like housing expenses.
Reduce housing expenses
If you live in an apartment you can barely afford, it might feel more like a prison than a home. So do yourself a favor: move to a lower-cost place. Afterward, you’ll be able to put more money toward paying off your debt. If moving isn’t an option, consider getting a roommate or renegotiating your rent.
Tackle your high-interest debt
If you have credit card, you might be paying around 20% APR in interest; your balances can add up quickly if you only pay the minimums every month. To save more, transfer your credit card balance to a zero interest credit card and start paying off your debt more aggressively. This way, you’ll have up to 18 months to pay your balance off interest-free.
Find your supporters
If you’re worried that your friends and family will be disappointed if you stop joining them on expensive outings, explain your situation. With more people who understand what you’re doing, the easier it will be for you to stick to your budget. If some of your friends are in the same boat, discuss budgets with them; you might get some new ideas for trimming costs.
Find a side-hustle
Whether you’re blogging for money, starting an Etsy business or doing freelance graphic design, generating an extra stream of income can boost your overall earnings and help you pay off your debt faster. Developing a portfolio and sharpening your creative skills might even help you land a full-time gig doing what you love and give your finances even more of a boost.
Stick to the plan — even after you pay off your debt
After you’ve paid off the last of your debt, it might be tempting to revert back to your old habits and start spending more. Instead, do something special to celebrate — go to dinner, see a movie, high-five everyone in sight — then get right back to saving as much as possible.
Brandow, who currently blogs about his budget on Debt Discipline, says that the next major challenge his family will take on is financing college for his kids. But after successfully paying off so much consumer debt, he feels better prepared.
“There’s no secret. It’s pretty much common sense,” Brandow says. “We have to spend less than we make.”