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As you work toward financial freedom, you are undoubtedly asking yourself how to start paying off debt. This is in fact, one of the top searches online for many individuals and couples. Getting rid of debt is a huge undertaking, and so many will struggle to really make it happen. These tips are going to make it a bit easier to manage for anyone no matter what their budget may be.
How To Start Paying Off Debt
Create a functional budget to get to know your spending habits. You cannot even begin paying off debt until you truly focus on what your budget allows. A budget is simply a listing of your income and expenses. It tells you how much money you have coming in each month as well as how much is going out of your pocket and to whom. A functional budget is specifically one that allows for your necessities to be covered while not leaving you in the red at the end of the month.
Evaluating your budget is vital to your overall ability to begin paying off debt. If you are unable to cover the basic expenses you already have each month, it will be difficult to pay off debt. By looking closely at your expenses you can see areas you need to improve spending habits and create more surplus that can be used to pay down debt.
Go on a spending freeze. One of the best ways to really get serious about your spending habit is to go on a spending freeze. We’ve shared tips in the past on how to handle a spending freeze, and they are a great resource for you to get started with. The reasons behind this are to really learn more about your impulse buys, as well as to teach yourself how to do without things you have become accustomed to having regulalry. A spending freeze doesn’t mean you have to have nothing for the time period, it just means you don’t spend outside specific parameters.
Create a savings account. You cannot begin paying off debt without a savings account in place. Even if it doesnt’ have much in it yet, the beginnings need to be in place. Most often, debt is accumulated due to a lack of funds to cover expenses. That means you had no savings in place. Use your time creating a budget to add in room for a savings account.
Look for additional income sources. If your budget is lacking in funds for paying off debt at a regular interval, then it is time to begin looking for additional income sources. We have shared many posts in the past regarding ways to hustle and earn extra money. These, asking for a raise, looking for a new job, or even taking on a part time job are all part of this process.
Evaluate all debt accounts. To start paying off debt, you need to take the time to evaluate all of your debt accounts. Look at things like your mortgage, car payments, credit cards, student loans, personal loans, and any medical expenses or other outstanding debt. Evaluate by sorting the ones that are lowest to highest. There are a few methods to help really begin getting rid of those debts in short order.
- Use the snowball method to pay off smaller debts first then use the monthly payments you had been putting toward those debts to pay off more on the next higher debt in line.
- Evaluate the interest rates on your credit card debts and focus on paying off the highest interest carying card first to avoid higher fees.
- Consolidate debts by moving balances from higher interest rate cards to one single lower interest rate card for a single monthly payment.
As you being paying of debt, these steps are a great process that will help you get started toward ultimate financial freedom.
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