Recent studies taken by consumer reporting agencies show that the average American citizen has over $20,000 in personal debt. While lifestyle choices and living circumstances vary greatly, Americans accept and carry debt unlike any other culture. Having a credit card and a mix of credit options (car loan, mortgage and student loan) is encouraged for developing a good to high credit score. Credit is the currency most often used at home and also overseas increasingly.
While having credit options for yourself is good to have both in terms of getting future loans or financial assistance in any form, as well as for protecting yourself in an emergency, overusing credit whether it is a credit card or a loan, can quickly put you in hot water.
Getting a credit card or loan can be fast. Unfortunately, paying off debt is not as easy and swift as getting the loan in the first place.
Whether you are looking to pay off student loans or credit card debt or a personal loan, you can achieve your goal if you are willing to follow this simple formula: Spend less than you earn and direct any money that you can spare, towards paying off your remaining balance.
It can take a while and it will require patience and some sacrifice. But through the process, you will learn a lot more about yourself, your needs and what you can and cannot live with. You will learn what’s essential and what you can save money on such as books, household goods, clothing, electronics and other items.
You may think that will be very hard for you to achieve as you have a lot of debt. People with incomes of $30,000 or less have been able to pay off as much as $28,000 in college debt in three years! All it takes is a plan and discipline.
Keeping a tally of your progress and a visual reminder is also important. It can be a huge motivator too as you can see what you owe and your progress as you pay it off! When you feel like giving up or just unhappy with your lack of entertainment or other luxury options you had before you started sacrificing, pull out your visual reminder to help you stick to your plan and motivate yourself.
Here are five ways you can pay off your existing debt, gain a firm financial footing and in some cases, entirely rebuild your life!
Automate Payments: You can pay off large loan amounts in just a few years completely by automating your payments and making sure they are pulled out of your paycheck before you can spend the balance. This helps you also avoid late fees and develop good credit as your payments are consistently on time. Then you can increase the monthly payment amount to accelerate clearing out your remaining balance.
Avoid lifestyle inflation: After you have paid off a credit card or got a pay raise, it can be easy to want to celebrate with a new purchase. However, it is better if you do not succumb to lifestyle inflation but choose to apply your extra cash to paying off your remaining debt. By continuing this approach, you can clear out all your debt systematically and then take your extra cash after your debt is cleared out, and put it into retirement savings.
Take an Extra Job: Sometimes you need extra effort to really get out from under debt. This can mean taking on an extra job or doing extra part time work till you are free from the noose of heavy debt burdens. Through discipline, you can accelerate paying off your debt and even putting away cash for other expenses before you need them. Having cash ahead of a purchase gives you time to really pick and choose what you want also!
Weekly Budget Planning: Even if there is only one member in a married couple who is working, you can still achieve your financial goals like paying off your combined debt, buying your home and putting away cash for your savings through weekly budget planning. This planning can also strengthen your marriage and prevent misunderstanding, while helping you focus together on achieving your goals.
Think of your Finances like a business: If you see your expenses as a business, you will quickly realize that you need to be profitable and earn more than you spend. Then you will find ways to cut costs, remove extra expenses and unnecessary items/furniture/belongings in your life. You may choose other ways to save money such as borrowing books from the library instead of instant downloads online and find ways to save by refinancing your mortgage. Through your diligence, you will be able to pay off any debt you owe and then apply the same financially healthy mindset towards growing your savings.