3 Most Helpful Way to Become Debt Free
Paying off all your debts can be difficult. You may get into debt due to various reasons. It can be due to your spending habits, unforeseen expenses, job loss and so on. If you are trapped in such a situation then it is time that you take stock of your finances. There are several smart moves that you can help to become debt free out of which we have pointed out the three most helpful ones below.
Find Out How Much Exactly You Owe
It may seem scary but it is very important you have an honest evaluation of your entire debt load. All you will need to do is gather all your credit cards, house loans, personal loans, auto loans, medical statements and all other invoices that you have. Make a list or create a spreadsheet of all debts and the interest rates you are currently paying. You should know exactly how much you owe, to whom and at what interest rate. You will never know the level of your debt if you never tally them. Until and unless you do not know the number it will be easy for you to convince yourself that you do not have a debt problem. So, instead of that be clear with your number. Taking care of your debt should always be your first priority.
Set Aside Funds To Get Rid Of Debt
You can start with calculating all your necessary monthly expenses. It should include everything from your day to day expenditures plus an emergency fund that will help you to avoid more debt. Subtract the total monthly expenses from your monthly income and you will find the amount you will be left with that you can dedicate to eradicate all your debt. In order to make quick progress in becoming debt free you will need to make a few changes in your spending habits. Try to identify your weak spots as well as the areas where you can cut back. You can also find new ways to earn extra money, like taking up a second job, working as a freelancer, selling old or nonessential stuffs, cutting out cable or magazine. Saving even a few extra pounds from your monthly expenses and using it to pay off your debt early can help you save hundreds in interest.
Create And Stick To A Strategy
There are several ways that can get you into debt. But there are very few methods that can help you to get out of it. The two main methods are debt avalanche and debt snowball. Which method works best for you will depend on your preference. By choosing the debt avalanche method you can pay off your debt in the fastest way. As per this method you first pay off your debts with the highest interest rates and then move on to the second one with the second highest interest rates. By doing so, you will be saving hundreds of pounds over time. This method may seem slow at first as it may take time to get the first debt erased completely. But if you are looking for upfront results then consider the debt snowball method. You can at first organize your debts from smallest to largest regardless of what the interest rate is and you first pay off your smaller debt. Compared to the avalanche method, this method seems faster. Though over the course of time, it will take longer and also cost you more interest.
The reward of being debt free are obvious-you will have more financial freedom, inner peace and most importantly, more money. By setting yourself free from all your debts, you can save your extra earning as an emergency backup or spend the money on traveling with your family or give it to charitable organizations.