Debt. Most of us have it, but none of us want it. According to a recent survey, the average American has over $6700 in credit card debt, and over $134,000 in total debt, which includes credit cards, mortgage, auto loans, and other household debt. Since the goal is to get rid of debt, here is the best advice for living debt free.
This post is sponsored by CreditRepair.com. All opinions are mine alone and are honestly conveyed.
Pay down expenses
Okay, this is obvious. If you currently have debt, you probably know that you need to pay it off to be debt free. The hard part is actually putting a plan in place to pay down your accounts to get to that debt free goal. So there are two methods which you can implement to pay down your current debts—the debt avalanche method and the debt snowball method:
Debt avalanche method
This method involves focusing on paying off the debt with the highest interest rate first. With the debt avalanche method, you would pay minimum payments on all current debts, except for the one credit card with the highest interest rate, and any extra funds would go toward making that payment each month. Once that one is paid off entirely, the money that was devoted to paying down that debt now goes toward the debt with the highest interest rate of the remaining debts.
Debt Snowball method
With the debt snowball method, you focus on paying off the smallest debt first. So, with this method, you make minimum payments on all current debts, except for the smallest debt balance. You put any extra money toward paying off this debt in order to free up that monthly payment, which then goes toward paying off the next smallest debt balance. The idea here is to get rid of the small amounts of debt and in the process, free up extra money quicker to go toward paying off the larger debts.
And the good news is that as you pay down (or pay off) debts, you will also, most likely, increase your credit score. Now, our goal is to get debt free, so you may be wondering why your credit score matters if you don’t want debt? Even if your goal is to live debt free, you may not have enough money saved up to just go out and buy a new car or house. So, while you are working on paying down those debts faster, you will still want to qualify for the best program possible so less of your money goes toward interest.
Increase your income
You can work on paying down debt as diligently as you want, but if you are working with limited resources, it could take a while. So, the only way to change that is to increase your income. Now, you may not be able to get a raise at work just by asking for one, but don’t worry, there are other options for increasing your income. You can easily start a side hustle and start generating extra income for your family relatively quickly.
Use cash when you buy things
The best way to not get into debt is to not use credit cards when you purchase things. It is really easy to lay down the plastic when shopping and forget just how much you are spending. However, if you are using cash, when the cash is gone, the spending is done. The only thing that you need to make sure of is that you still set a budget for the cash spending for the month. Make sure all of the necessary purchases are taken care of—such as groceries and other household consumables—before buying the wants. You may even find it useful to use an envelope budgeting method each month to track your cash spending. This will help to keep you organized and on track within each category.
Pay off credit card bills each month
If you do choose to use credit cards, make sure that you are using them intentionally, and pay them off each month. Sometimes, you may want to use a credit card because you can earn travel points, rewards, or extra discounts. So, in those cases, it is actually to your advantage to use a credit card. The thing that you want to avoid is carrying a balance and paying interest. Credit cards are known for charging high monthly rates of interest, and if your credit cards have balances, you may be paying more in interest than you are receiving in rewards.
Be okay with saying “No”
It is one thing to set financial boundaries for yourself, and in essence, tell yourself “no” when it comes to making certain purchases. But it can be quite a bit harder to tell other people no when it comes to financial decisions. Why is that? Well, it doesn’t really feel like a financial decision to tell your friends that you won’t be going on the annual New Year’s eve ski trip, or that you will have to miss out on dinner and a concert, or any other entertainment that you may usually attend. It may feel more like you are just saying “no” to hanging out with your friends—and that can be hard. When these types of social decisions flow over into financial decisions, it is best to just be honest with your family and friends and let them know that you are making the decision based on your budget. If you are trying to save up to buy a house, or pay down student loans, or reach another financial goal, just let them know that you’d love to spend time with them, but the more expensive events just won’t be possible for a while. Letting your loved ones know why you are missing out on events that you would normally go to can also save some hurt feelings along the way too. Who knows, maybe they’ll even join you in your frugal behaviors and come up with ideas to have fun when you’re on a budget so that you all can spend time together without spending a lot of money.
Related article: Financial Tips for Millennials