How To Pay Off Debt Fast And Save Money This Year4 min. read
A new year, a new chance to make it right. While some of us might still be having a hard time writing “2017,” we are all filled with high hopes that this year will be the time we can finally change our financial health for the better.
If you truly want a clean slate, you need to start with the lowest point of your money woes: debt.
However, going debt-free isn’t as simple as paying it off once in a while, only to find yourself incurring bad debt in the future. What you to need to have is a systematic approach to make sure you will get out of your debt and not fall into the downward spiral again. As they say, a person who never has enough money to pay his debts has too much of something else. Here’s how you don’t become that person.
1. Stop getting debts (in the meantime).
Debt in itself isn’t bad; in fact, you can borrow money to give your financial status its much-needed boost or allow you to secure items in the form of a home loan or an auto loan, for instance. However, if you are serious about getting out of debt, the first step you need to take is to stop letting your debt pile up. This means no more debts until you wipe your slate clean.
Leo Babauta of Zen Habits recommends the total avoidance of credit cards for at least a month to give yourself a breathing room for your debt recovery program. “For 30 days, see if you can stop any non-essential spending,” he advises. “If you have a major problem with credit cards, cut them up. If you’re not so bad with credit cards, at least put them away and don’t buy stuff online for one month.”
See related topic: (Is There Something Wrong With The Way Our Money Is Designed?)
2. Track how much you owe.
Going through your bills, receipts, and statements of account may be a grueling task. However, a lot of people avoid this part not because it is a lengthy process to sift through your bills. In fact, people don’t want to do this is because they are in denial of their problems—and doing so will force them to finally confront their debt problems once and for all.
According to Gail Cunningham, spokesperson for the National Foundation for Credit Counseling, a nonprofit debt relief organization based in the US, people become rather uncomfortable whenever they face their debt issues. “People are afraid of what they’ll find,” she tells Time Money. “There’s nothing like seeing your spending staring back at you. That could force a behavioral change.”
3. Make your expenses leaner.
When you are still shackled by debt, there is no reason for you to prolong the agony while still living the good life. You might want to start trimming down your luxuries and vices. This way, you will have extra cash to help you get closer to living a debt-free life.
Kathy Burns-Millyard of The Nest says it is possible to make your expenses much smaller by listing down the necessary ones and letting the rest go to both savings and debt repayment. “Write down a list of ongoing bills that must be paid each month such as the electric, rent, and telephone,” she says. “Include minimum debt payments on this list such as the minimum payment for your credit card and the amount of your monthly car payment.”
See related topic: (Pay Off Debt With Low Income In 5 Steps)
4. Pick a debt repayment strategy.
There is no universal formula when you’re paying off debt. While you can simply pick off either the smallest or largest one to prioritize first, there are other factors that require you to examine the nature of your debts—this includes both interest and non-interest loans. Once you have a list of your debts, it’s time to formulate your payment method.
Top financial guru Fitz Villafuerte says there are four methods on how you can pay off your debts:
- Debt snowball method. You pay your debts from the smallest to the highest amount.
- Debt avalanche method. You deal with your debts with the higher interests first to prevent your debts from growing further.
- Debt snowflake method. By doing this method, you are putting into debt repayment every peso you save.
- Debt snow shovel method. You look for other sources of income if you cannot pay the minimum amount for your loans.
Once you’ve decided on which method to use, you can start paying your debt now and stay the course until you’re free and clear. You can do it any time of the year, of course.