For the Financial Independence Hub
Living debt-free might seem like a distant pipe dream to many, and that’s unfortunate. Being crippled with debt is difficult, and even more so when you feel like the situation is hopeless. The reality is that most people who have large amounts of debt could be making simple steps every day to turn their situation around. The issue for many is knowing where to start. Let’s take a look at what you can do today to get on the road to a debt-free life.
Take a long hard look at your Financial Situation
The first thing you have to do is know exactly how much debt you have. This will allow you to get a clear assessment of your finances and start working on repaying them. Not only that, but there could be cases where your situation might not be as bad as you thought. For instance, did you know that entries on your credit report have to be removed after a certain period? This means that some of the debt that you thought you had may have been expunged from your report a long time ago. This is why you need to keep a close eye on your credit report and get your annual statutory copy from the one of the three major credit reporting agencies. Once you know exactly what you owe, you can build a plan.
Call your Creditors
The next thing you have to do is get in touch with your creditors and work on a plan. There are some cases where you can work with a professional who will help consolidate all of your debt and have you pay a fixed sum per month. This can be a good option in some cases, but you don’t necessarily have to hire someone. Calling your creditors and speaking with them directly could help you shave off a few dollars of your debt. Also note that the more you can pay upfront, the more they will be willing to lower the amount of money you owe. Try to get them to report the payment to the credit reporting agencies in writing as well so it can be reflected on your credit score.
Use your Credit Cards wisely
If you have multiple credit cards, we would suggest that you start paying them off one by one. Tuck away the one with the highest balance and commit to paying it in full. Set up automatic payments if you have to. This will allow you to both reduce your overall debt and significantly improve your credit score by lowering your credit utilization ratio.
You then have to use your other cards wisely. A lot of people believe the myth that paying the minimum is something credit card companies will reward, but that’s complete hearsay. In reality, companies love people who use credit responsibly, and one of the best ways to do that is to use as little of your credit as possible. So, if you want to be viewed favorably by creditors, aim to keep your total utilization ratio under 30%.
If you want help with credit card debt and feel like you don’t have the discipline to pay them off on your own, we suggest you check out Tally. Their app will allow you to manage your credit cards all in one place and could even help you save on interest if you qualify for their low-interest line of credit. They will help you pay your cards automatically through an easy-to-understand interface, ensuring you don’t have to deal with a late fee ever again.
Know what you’re signing up for
Very few people take the time to read the fine print when they get a credit card and more people should. One piece of research reviewed credit card agreements for clarity and found that the majority of people surveyed could not understand them. That’s a big problem when considering that credit card agreements can include provisions that will allow them to change the interest rate at will.
This is why you need to learn what to look for and not view credit card contracts as just another piece of paper.
Become a thrifty shopper
You may also have to readjust some of your spending habits. There’s a longstanding joke that millennials can’t afford a home because they love Starbucks so much, but there’s a grain of truth to this. Food establishments often make insane margins on products you could easily make at home. If you love eating out so much, you should start to learn how to cook and see the type of savings that you could make.
If the issue is time, we would suggest you get in the habit of prepping your meals. This way, you could prepare your whole meals in one day and freeze them. This will give you ready-made meals for lunch at work and reduce the number of times you order takeout.
You also have to make better choices at the grocery store. Take advantage of specials whenever you can. If you see a deal on non-perishables, stock up as much as you can. We would also suggest that you invest in a chest freezer. You can find these used for cheap, and this could allow you to stock up on frozen items when they’re on special.
As well as this, you have to find ways to save on everyday purchases whichever way you can. Try to find used alternatives to new items, for example. These could be items you need around the house, or clothes and accessories. Pawnshops in particular are great places if you want to make a steal on electronics, or even things like jewelry. So, don’t be afraid to look around and think outside the box.
Most people hate budgeting, but it could be the most efficient way for you to get and stay out of debt. Budgeting will allow you to know where every dollar you spend is going, and also help you identify bad spending habits that you may have. A good budget should always have a portion for entertainment, so do not overestimate yourself. You might be able to cope for a few weeks or even months, but you’ll eventually explode. So, for the sake of your sanity and your financial health, make sure that you allow yourself at least 10% of your net pay for fun.
If you’ve never made a budget and need some help, know that there are tons of apps that you can use. Some will have advanced features like forecasts to allow you to plan for future expenses, while others are more like glorified Excel spreadsheets. Choose one that works for your needs and that you’ll be able to understand.
Live within your means
A lot of people don’t know what they can afford, and that’s a big problem. The best way to know if you’re living beyond your means is by comparing your total amount of debt with your gross income. If your debt is over 43% of your monthly income, this means you’re spending too much. An ideal percentage should be around 15%.
If you want to free yourself from debt, these are the steps that you’ll need to take. None of these are difficult, but they do require your dedication, so follow through if you want to live a debt-free and less stressful life.
Emily Roberts is a young writer who is passionate about literature and blog writing.