Debt is part of life, but you should never let it drain you to the point where you start to relate your own worth and happiness to financial obligations like debt. As difficult as it may be, it’s important to face your debts head-on and relieve yourself from that burden in order to achieve financial freedom.
Financial freedom is something most people crave to achieve, but debt can serve as a major roadblock to achieving that. In order to save more, invest, and become more financially independent, you need to free up the cash from your budget in the first place. I don’t know anyone who’s financially independent but still saddled with car loans, credit card debt and student loan debt. Thus, it’s safe to say that getting rid of debt is an important step that can help you reach financial freedom.
So how do you get started and stay on track to actually see results? Here are 6 ways to get out of debt and achieve financial freedom.
1. Assess Your Financial Situation
If you’re in debt, this is no doubt heavily affecting your financial situation. So many people believe that debt is normal or numb themselves to the fact that they owe a creditor a lot of money. This type of mindset won’t do you any good because it’s not helping you solve the problem.
Start peeling back the rug and carefully assessing your financial situation and the debt you have. You can start by reviewing your credit. How much credit are you utilizing and is anything in collections? There are tons of free sites that will allow you to check your credit score like Credit Karma and Credit Sesame.
Next, layout all your bills and list out your total debt balances, the minimum payments, and the interest rate. Doing this will give you a clear and accurate picture of how much debt you have so you can start to prioritize accounts and create a strategy.
2. Negotiate with Your Creditors
As much as it is hard to negotiate with creditors, it can help you get out of debt quickly. You can start with prioritizing your bills from the most important ones like rent, mortgage, utilities as well as insurance and transport.
Make the payments or give the card issuer a call if you cannot make the minimum payment on a credit card. This way they will not have to do the tedious work of sending your account to collections or worse, tracking you down.
So depending on your credit history, you can be in a position to negotiate for a lower interest rate with your creditors or ask for a lower minimum payment. If you’ve been making on-time payments but your situation has changed (perhaps you endured a job loss or furlough), you may be able to negotiate payments, lower your interest rate, or defer payments.
Keep in mind that while payment relief options can be helpful, it should also be a small part of your strategy. You will still have to manage the debt so long as you don’t file for bankruptcy. Prioritize your debts by determining which ones you want to pay off first and which ones you can negotiate or defer. During the relief period, continue to work on paying down the other debt you’re prioritizing. Use it as an opportunity to get ahead and knock out a burdensome balance.
3. Lock Your Credit Cards
To avoid plunging into too much debt, you can try to minimize your use of your credit cards by either locking them up somewhere you cannot always reach, freezing them in a bowl of water, or cutting them up. If you are serious about getting out of credit card debt and know you have a problem with overspending, it’s wise to just stop using credit cards for the time being.
Eliminating the temptation to spend with credit cards can also free up more mental space and energy for you to focus on developing better money management habits.
Also, consider opting out of your relationship with certain creditors. You can opt-out of receiving pre-screened credit card offers by clicking here.
4. Create an Emergency Fund
This is very important when you are trying to get yourself out of debt. It can help in times of need especially during emergencies and when your debt is high up on your neck. You don’t want to pay off debt only to get back into debt when an unexpected expense comes up. This is why it’s important to create a baby emergency fund to help you stay afloat so you don’t continue to borrow more money and dig your way deeper into debt.
Saving anywhere from $1,000 to $3,000 is ideal. Life is full of surprises so this money would definitely come in handy when life happens. Creating a baby emergency fund may slow your debt repayment process down a bit, but it will be worth it for the added protection.
Just be sure not to spend the money on non-necessities or expenses that are truly emergencies.
5. Spend on What Really Matters
You should start cutting back on what you do not need and start spending money on the essentials only. This way you get to save loads of money that would have been wasted on frivolous items and services.
As much as it seems frugal, it can be the best road to take and also give you some important habits that contribute to financial freedom. You can start by making payments of your most important bills like utility bills, rent, and gas. You can also swap eating out for some home-cooked meals.
Likewise, do some research on discounts, coupons, and other affordable deals before making any purchase. Such small cutbacks can help you save loads of money that you can save or use to pay your debts.
A proper budget be it monthly or weekly can go a long way when it comes to helping you become and stay debt-free. Nonetheless, you should try to stick to it and avoid spontaneous purchases.
Nowadays there are modern apps, software, and services that can help you make a proper budget and stick to it. They can even remind you of upcoming bills and make some financial suggestions to help you along the way.
You can also use your budget tool to spot some areas where you need to cut expenses. This way you save some money to either fund your emergency account or pay off some debts.
You can become debt-free if you are disciplined enough to follow the steps needed in order to do so. These 6 steps are not the easiest, but they work and help you develop much better financial habits for the future. Remember, paying off debt is just one part of your financial journey and doesn’t have to represent your entire future.
Are you ready to take steps to achieve financial freedom this year?