
Debt seems like a new lifeline when you are stuck with a financial crisis but in reality, it’s just the start of a stressful journey especially if you can’t afford it. In debt, you don’t just pay off the amount you took, in fact, you have to pay the interest on it too and this just increases the overall cost. On top of that, late or missed payments can impact your credit negatively and your debt just keeps piling up with all the additional fees. In a nutshell, if for some reason you’ve already taken up a loan, you should try to pay it off as early as possible to avoid any further financial damage.
During such difficult times, all you need to do is to practice financial discipline in your life and follow a structured plan to reduce your expenses and pay off your debt faster. In this guide, we’ll tell you all about some of the simplest but the most powerful strategies that can help you cut down unnecessary expenses and take control of your finances.
Starting with;
1-Budgeting
Even if you aren’t under any debt, budgeting is still important to live a financially free life. It’s no rocket science, you just have to evaluate your financial situation, know your income, your necessary expenses, your unnecessary expenses and the amount of money you can easily save at the end of every month. Following the 50/30/20 rule here can simplify the process for you. You should use 50% of your income on your necessities, 30% on your discretionary expenses and the rest of the 20% should go into savings. Once you adopt this rule and follow it strictly every month, you’ll witness the change in your finances yourself.
2-Increase Your Income
During such tough economic times, jobs aren’t paying as well as they used to. To deal with such a situation, you should try and take up extra jobs or start a side hustle like freelancing etc to increase your monthly income. This specifically is important for people dealing with debt. It’s a little daunting to save money while you are already in debt but it’s not impossible and all you need to do is to walk an extra mile to achieve your financial goals.
3-Choose A Debt Repayment Plan
Fortunately, there are multiple debt relief options out there especially for people who can’t afford their debt. Debt settlement is one of the most common options as it reduces your debt. You either pay a lump sum of the total amount you owe to your creditor or decide on a structured monthly payment plan. The creditor then forgives the rest of the portion of your debt and that’s how you resolve it. Other than this, you can opt for debt consolidation or debt management plan too. There’s no one-size-fits all in this case and the right option varies from person to person.
It’s best if you hire debt relief companies like Mountains Debt Relief to deal with such issues. Not only will they provide you the most professional services but they’ll also guide you on which debt relief strategy suits your situation the best.
4-Track Your Spending
In order to reduce your expenses, you first need to figure out where all your money goes. If you are making any unnecessary purchases every month, you obviously need to cut them down especially if your goal is to pay off your debt faster. For example, you should start eating at home more than dining out as it’s quite expensive. Also, you should cancel any unnecessary subscriptions that you don’t really need and sell the items at your home that you don’t really use. Keeping a track of your spendings is the most crucial step when you want to become debt free.
5-Build An Emergency Fund
You should always have an emergency fund prepared if you don’t ever want to fall in debt again. You see, emergency situations are inevitable but if you have the funds to deal with them, it becomes a lot easier. You should have a separate savings account only for emergency use. Decide on an amount that you can save every month and then automate your payment to make the process smoother. Even if it means saving $10 every week, go for it. You can start small and eventually increase the figure when your situation gets better. You can’t imagine the amount of relief it’ll bring when you’ll have at least 3 to 6 months of expenses saved.
6-Use The Debt Snowball Method
If you are dealing with multiple debts then using the snowball method can work wonders for you. It’s quite simple, you just have to pay off your smallest debts first in order to build momentum. If you start with the biggest debt, you might lose motivation and the process can overwhelm you. So, it’s best to deal with the ones that are more manageable and once you’ve dealt with them, you can then focus on the rest of the debts. You just have to pick the method that keeps you motivated and helps you make consistent progress.
7-Avoid New Debt
When you are trying to save money, new debt should be your worst enemy. Remember, discipline is crucial here and you shouldn’t rely on credit cards or new loans to deal with the older ones. Even if you need to, freeze or just shred your cards if you can’t resist the temptation to use them. Taking up another loan shouldn’t even be your last resort or else you’ll get stuck in the same pattern again.
Debt Settlement And Debt Consolidation-The Most Effective Ways To Pay Off Debt Faster.
Paying off your debt faster and saving money all at the same time seems really tough but it isn’t especially if you opt for financial strategies like debt settlement and debt consolidation.
Debt Settlement: A debt settlement is an agreement between you and your creditor where you ask the creditor to forgive a portion of your debt and you pay the rest of it as a lump sum. If you can’t afford the lump sum, you can request a structured monthly payment plan too. Debt settlement is possible for those who are dealing with a severe financial hardship that’s making it impossible for them to pay off the debt in full. Moreover, for your creditor to accept your offer, you should be far behind your payments or have a delinquent account.
Debt Consolidation: Another great method that makes debt more manageable. If you are dealing with multiple debts then debt consolidation can bring you the kind of relief you are looking for. In this strategy, you combine all your debts into one. You take up another loan to pay the rest of your smaller loans and then you have to deal with a single loan with a single interest. It’s a very smart strategy that can work wonders for you if applied the right way.
Final Verdict
To reduce your expenses and pay off your debt faster, you need proper planning, commitment and discipline. With the help of a smart budget, reduced spending and increased income you can easily achieve your financial goals. Just give the process some time because this isn’t something you can achieve overnight. You have to put in efforts and ensure that you are using your money exactly where you need to and not overspending it on unnecessary places. If required, you should seek help from a financial counselor to sort out your financial health.
FAQs
Q1. Should I Save Or Pay Off My Debt First?
It’s best to focus on both the aspects. You should start by building an emergency fund to avoid depending on credit cards in case of unexpected expenses. Then you should focus on your debt. Once you’ve dealt with the high interest debt, you can then shift your focus to investments and savings.
Q2. Can Budgeting Really Reduce Debt?
Yes, budgeting is quite important because it helps you identify where your money goes and what costs you can easily cut down. You have to identify your spending leaks and once you’ve figured that out, it’ll be a lot easier to allocate your funds towards debt repayment. Having a clear budget is undeniably one of the most powerful tools that can help you gain financial control.
Q3. How Much Should I Cut Down From My Budget To Pay Off Debt?
You can take a small start and cut around 20% to 30% of your discretionary expenses. Use those funds to pay off your debt first. Even such minor changes can make a huge difference in the long run.