Going into debt is a standard that many Americans accept as a normal way of life - and realistically, most people don’t have the option not to. Our world is run off of credit scores - if you want to buy a house, car or even open up a new account with a cell phone provider, your credit is checked. That is why many financial advisors emphasize that building credit is important. So with that advice, we get credit cards and then buy cars, furniture and more in the name of building credit. While this process starts with good intentions and can greatly benefit you when done correctly, it can quickly turn into a debt trap that becomes all-consuming and a heavy burden. So how can you get out of crippling debt and start making the system work for you? Here are five ways:
● Set Up a Budget: Creating and using a budget is not the most exciting thing. But the reality is, if you want to pay off debt, you need to budget your way through it. First, make a list of the categories you need to spend money on and identify areas you could cut costs in. Then, you can allocate that extra amount to pay off debt.
● Increase Your Income: When you want to start paying off debt and budgeting, it is very helpful to have a little extra income to allocate towards paying off debt. A part-time job or side-hustle is a great way to generate extra funds to put towards debt.
● Begin a Debt Snowball: Dave Ramsey developed a way to knock out the debt. He suggests paying off debt by working on paying off the smallest amount of debt you have first and then working your way up to paying off the bigger ones. For example, if the smallest debt you have is $1,000, reconfigure the budget to make bigger payments towards that each month. Once that one is paid off, use that extra money in the budget, plus what you were originally paying on the card, to pay off the next biggest credit card balance. Then, each time you pay off a credit card balance, you will be able to allocate more money to another card payment. Repeat the process until you have eliminated all of your debt.
● Stop Buying Things With Credit: It is so easy to finance anything these days, but it is a slippery slope. Instead of financing that couch you want, save up for it and pay it in full.
● Reward Yourself for Working Hard: Realistically, getting out of debt can be really frustrating, hard work and take longer than you have the patience for. To combat discouragement, make sure to reward yourself every once in a while for sticking with the process. For example, budget a date with your partner, dinner with a friend or something else to make yourself feel celebrated. Once in a while, it is good to reward yourself for a job well done. It will help you stay on track with your goals and motivate you to keep going.
These tips only work if you are disciplined enough to do them. The principle of delayed gratification is essential. Even though it may not be fun at the moment, it will be so worth it once you feel the freedom of not having debt hanging over your head. Best wishes on your journey to financial freedom!