You and debt are so over. You’ve just about had it with those endless piles of credit card bills and those hideous numbers that never seem to get any lower. It’s time to kiss that debt goodbye!
Getting rid of high debt will take hard work, willpower and the determination to see it through until the end, but it is doable. Here, we’ve outlined five steps to help you start crushing debt today.
Step 1: Choose your debt-crushing method
There are two approaches toward getting rid of debt:
- The snowball method, popularized by financial guru Dave Ramsey, involves paying off your debt with the smallest balance first and then moving to the next-smallest, until all debts have been paid off.
- The avalanche method involves getting rid of the debt that has the highest interest rate first and then moving on to the debt with the second-highest rate until all debts have been paid off.
Each method has its advantages, with the snowball method placing a heavier emphasis on achieving results at a faster pace, which then motivates the debt-crusher to keep going, and the avalanche method, focusing more on actual numbers and generally saving the borrower money in overall interest paid on their debts. There’s no right approach, and you can choose whichever method appeals to you more.
Step 2: Maximize your payments
Credit card companies are out to make money, and they do this by making it easy to pay just the minimum payment each month, thus really paying only the interest without making progress on the actual principal, thereby trapping millions of consumers in a cycle of endless debt. Beat them at their game by maximizing your monthly payments. Free up some cash each month by trimming your spending in one budget category or consider freelancing for hire and channel those freed-up or newly earned funds toward the first debt on the list you created in Step 1. Don’t forget to continue making minimum payments toward your other debts each month!
Step 3: Consider a debt consolidation loan
If you’re bogged down by several high-interest debts and you find it difficult to manage them all, you may want to consider consolidating your debts into one low-interest loan. A personal loan can provide you with the funds you need to pay off your credit card bills and leave you with a single, low-interest payment to make each month. Or, you can transfer your credit card balances to a single card with a low-interest or no-interest introductory period. Be aware, though, that you could get hit with high interest rates when the introductory period ends.
Step 4: Build an emergency fund
As you work toward pulling yourself out of debt, it’s important to take preventative measures to ensure it won’t happen again. One of the best ways you can do this is by building an emergency fund. Ideally, this should hold enough funds to cover your living expenses for three to six months. Start small, squirrelling away whatever you can in a special savings account each month, and adding the occasional windfall, like a work bonus or tax return, to beef up your fund.
Step 5: Reframe your money mindset
Sometimes, like when there’s a medical emergency or another unexpected and expensive life event, a consumer can get caught under a mountain of debt through no fault of their own. More often, though, there is a wrongful money mindset at play leading the consumer directly into the debt trap.
As you work on paying off your debts, take some time to determine what got you into this mess in the first place. Are you consistently spending above your means? Is there a way you can boost your salary or significantly cut down on expenses? Lifestyle changes won’t be easy but living debt-free makes it all worthwhile.
Ready to take that first step toward financial wellness? We make it easy to open multiple savings accounts online and start putting money aside to reach your goals. Save effortlessly when you set up automatic recurring transfers through online banking.
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