7 Strategies to Get You Out of Debt
Before you retire your 9 to 5 and begin your adventure, it is imperative to pay off all of your debt first. You will learn 7 Strategies to Get You Out of Debt.
Let’s begin with getting a better understanding of what is debt and the different debts you might incur.
Debt is a common scenario, although some people attach taboos to it. However, there is no shame attached to it because everyone has been into debt sometimes in life. It is a misconception that only low income and middle class take on debt. In fact, riches are into debt as well.
Not all the debts are bad because some are for investments such as home-owning or plot purchasing. And some used in unavoidable circumstances, such as medical emergencies or fulfilling other compulsory financial obligations.
After acquiring debt, educate yourself in the different financial strategies that can assist you to pay them back off, with little hassle.
I can relate to these strategies (listed below). As we have repaid a debt of over $75,000 in the last few years following different hacks and strategies. These have helped us save thousands of dollars and fulfill our traveling dream.
We adjusted some of our lifestyle changes and became minimalistic by downsizing, cutting expenses, and which helped us repay our debts sooner. Also, we adapt our self to a nomadic lifestyle so that traveling around the world is an easier affair for both of us. It taught us how to retire from your 9 to 5 routine and start living up to our dreams of traveling.
To help many others like us who love traveling within budget, we are sharing our own personal financial-hacking strategies that have enabled us to reach where we are.
Listed below are some strategies that will work for those who are debt-ridden (trust us? These 7 strategies really work as we have practiced them ourselves).
1) The Debt Snowball
The debt snowball method is a fast technique for reducing debt and paying off your non-mortgage debt. In this method, you pay off the debt in the order of smallest to largest. As you keep on crossing out the balance, you feel a sense of momentum building. For instance, against a car loan and debt of five different credit cards, you can pay off two of the cards initially, which will leave you with only four accounts to pay down instead of the remaining six. This will encourage you as debt will diminish.
Pros of This Method
ü Repayment makes you feel at ease
ü Greater satisfaction from repaying a loan and closing the account
ü After eliminating one loan, you have more money to put against another loan that creates a snowball effect
Cons of the Method
§ You end up spending more money in interest payments while paying off loans in order of balance
§ It only gives psychological benefits whereas you end up wasting more money on interest payment
2) The Debt Avalanche
This method of debt repayment prioritizes your interest rates. And you pay off your credit card debt from the highest to the smallest interest-rate irrespective of the balance.
This method helps to save money on interest and you pay off your credit card debt faster as you are tackling your highest interest rates first, which eventually saves money in the long run just like an avalanche.
Pros of the Debt Avalanche
ü Paying off balances with higher interest-rate saves money in the long run
ü You take a higher interest-rate first, which decreases your debt
ü Decreasing your debt means quick repayment of debt
Cons
§ Privatizing higher interest rates need patience and motivation as results are hard to achieve.
§ More outstanding balances can be disheartening
3) Apply for a Personal Loan
For the purpose of consolidating your credit card with outstanding debts, you may apply for a personal loan to pay off debt which will help you get freedom from multiple payments. If you can qualify for a personal loan, you would repay the debt at a more affordable interest rate and fair terms.
Pros of Personal Loan
ü Your debts are consolidated into one payment
ü You might qualify for a loan with the best interest rate and terms
ü You can secure a lower monthly payment with a lower APR and set a repayment schedule as per your requirements.
Cons
§ Depending upon your lender, you may have to incur extra costs like application fees, origination fees, or prepayment penalties if you pay off your loan early.
§ If you don’t pay back your loan, you could lose the property you put against a secured loan.
4) Stop Creating More Debts
Your debts keep you away from attaining financial goals like accumulating down payments or saving for retirement. Make sure you are not creating more debts and rather focusing on repaying the existing only.
5) Look into Balance Transfer
One of the best strategies to get out of credit card debt is to use credit cards, which are sometimes referred to as good balance transfer cards. Here you transfer debt from one card to another card or cards with the benefit of a very low initial interest rate or no interest for a specified time.
Mostly the initial rate ranges between and 1 month.
Tip: Check for the generous grace period and relatively low standard-interest rates.
Also, take into account balance transfer fees ranging between 3%–5% of your amount transfer.
6) Change Your Expenditure Habits
It is very obvious that to reduce expenditure you have to change your spending habits. Now, start spending less and/or earn more. This will leave you with more money, which you can apply for debt reduction. Initially, it might sound difficult but you will get into the spending-less habit in a month or two which will get you back into good financial help. And you can work toward your other goals.
Here Are Some Suggestions For Spending Less:-
ü Curtail eating-out expenditure
ü Stop gym membership and unnecessary subscriptions
ü Negotiate lower charges for your cable TV company
ü Cut down your shopping and entertainment expense
ü Don’t go out for a movie frequently
Ways For Making Some Extra Money:-
§ Take a part-time job to earn extra income
§ Sell off one of your cars if you have two
§ Consider working at a local store or giving tuitions or pick up some freelance tasks
§ Be a babysitter, dog walker, or pet sitter
§ Collaborate with Airbnb or Agoda.com to rent out your property
§ Consider making and selling things like jewelry, soap, cakes, knitting, woodworking, etc.
§ Sell off your garage and/or basement, attic, spare furniture, etc.
§ Take up driving services with Uber or Lyft, etc. Or you may start delivering meals via services such as GrubHub or DoorDash.
7) Create a Budget
Budgeting is an important prerequisite for reducing your credit card debts. Start with establishing a realistic budget for your regular monthly expenses. Set aside a fixed amount to meet those expenses and also set up savings for meeting some unseen expenses that happen periodically or unexpectedly.
Saving for unexpected financial emergencies, house and car maintenance, insurance, etc help keep your credit line intact and it would save you from adding up debts.
A simple formula to determine the amount of the annual expenses is to add up the number of your annual expenses, divide it by the number of paychecks you will receive throughout the year. The amount you will get is the sum you need to set aside from each paycheck.
Keep your savings for contingencies in some separate accounts. You can set up a separate savings account in which there are automatic transfers from your paycheck. This will help you manage your annual expenses more effectively.
Right Approach and Savings Pave The Way To Dream Fulfillment
You see that learning to manage your expenses and repaying your debt strategically is not as difficult as it sounds. All you need is little patience, compromise, and discipline to get through.