Do you dream of being debt-free?
Do you lie awake at night worrying about debt collectors and unpaid expenses? No matter how debt is affecting your life, we’re pretty sure you’d rather rest easy knowing you’re in the black. Thankfully, there are several concrete steps you can take to bring yourself closer to a debt-free lifestyle.
Read on to learn five ways you can make your debt-free dream a reality.
1. Do some damage control
Watching debt pile up is tough, and it’s tempting to look away as you see your problem get worse and worse. If you’re ready to get serious about tackling debt, you have to look it in the eyes and show it you mean business. It’s time to take inventory of the following:
- Credit card debt
- Student loans
- Medical bills
- Unpaid taxes
- Car loans
Phew, okay, that was a lot. We know this first step can be a rude awakening, but now that you understand just how much you owe, you’re ready to move on to step number two.
2. Formulate your plan of attack
Debt is a formidable enemy, but with the right strategy, you’ll be able to come out on top. While the premise of paying off debt is simple (give back the money you owe), your strategy should be more involved. Take some time to determine which debts are the most pressing.
Start by finding out which debts are due first, which interest rates are highest, and where you owe the most money. Then weigh the pros and cons of paying off each. If your unpaid utilities are going to charge you a huge late fee, pay those first. If one of your credit cards has a higher interest rate than another, either pay it off ASAP or transfer the balance to a card with a lower rate.
However, there’s one kind of debt that you should probably bump to the top of the list…
3. Prioritise paying off tax debt
If there’s one thing you want to avoid, it’s going into tax debt. Owing the IRS or HMRC money can cause your financial stress levels to skyrocket. The good news is that you have options to deal with your tax debt:
- Short-term payment plans
- Long-term payment plans
- The IRS Fresh Start program
- Offers in compromise (OIC)
Don’t hesitate to enlist the help of a tax lawyer, CPA, or another financial professional. They’ll help you set things straight.
4. A debt-free life requires a few lifestyle adjustments
There are plenty of reasons why your debt may catch up with you. Whether you were a little too swipe-happy with your credit cards or were unexpectedly laid-off, you’re still going to need to find ways to reduce your spending.
There’s no one-size-fits-all way to cut down your expenses, so we recommend tracking every penny for at least a month to see where you can cut back. Remember, you won’t be in this situation forever, and it’s better to make some sacrifices now than to find yourself still swimming in debt later on.
5. Staying out of debt is as important as getting out of debt
We feel confident you’re going to be out of the red before you know it. Once you’re in the clear again, it’s crucial to come up with a plan to stay that way. Take a look at some ways that debt may sneak back up on you, so you can course-correct before it’s too late:
- Lifestyle creep. This happens when you increase your expenditure every time your income increases, which ultimately holds you back from amassing real savings.
- Ditching your budget. As they say, don’t get cocky, kid. If you dig yourself out of debt thanks to your trusty budget, then you can’t expect to scrap it altogether and see the same results. If it worked for you before, it’ll continue to work for you.
- Taking “treating yourself” too far. Self-care is important, but within reason. Buying a new watch or handbag every time you feel a little blue is not a sustainable lifestyle—and definitely not a debt-free one.
Don’t be discouraged by the journey
Of course, you wish you could snap your fingers or click your heels three times and make your debt disappear. However, good things take time—getting out of debt is no exception.
Even if you follow the steps above to a T, you still might encounter a few bumps in the road. Don’t get discouraged. We promise your hard work will be worth it.