How to Create a Debt-Free Strategy
Getting out of debt may feel like a challenge you’ll never overcome, but with determination and commitment, it can happen. Like most things, a good strategy is at the top of the list to helping you become debt-free. However, before you create your strategy, you need to make sure you know what your debt scenario is.
- How much do you owe?
- Are you spending more than you earn?
- What is the value of your assets?
Once you know your complete scenario, the first step in your plan is going to involve creating a budget. This is where you should be asking yourself questions such as:
- How much money is coming in each month?
- How much money is going out?
- How much money should be allocated to each category of expenses?
When your budget is in place, you can start to work on your actual strategy. Some tactics that have worked for other people include…
Keep spending below what you earn.
This may sound like common sense, but if you aren’t tracking your expenses, you may be surprised to find out that your debt has occurred from overspending. Look for ways you can cut monthly expenses and find cheaper options whenever you can.
Pay off debts with high interest.
The higher the interest, the more debt you are accruing over time. Making these debts your highest priority will help you to save money in the long-run.
Pay off smaller debts.
Each debt counts against your credit report. Getting rid of many debts and then focusing on one or two larger debts can make your debt management feel more realistic and approachable.
Look for ways to earn more money.
Are there ways you earn extra income or sell assets to help build up some extra income? Working a little bit extra (or smarter) can make a big dent in your overall debt.
Once you decide on your tactics, you need to commit to an actual plan. Set a realistic date for when you want to be debt free. Have a list of all of your debts including how much they are. Prioritize these by which debts should be paid off first. Determine how much money from your budget will be used to pay off debts each month. List any assets you can sell to help raise more money to pay off your debts. Determine any jobs or activities you can take to help increase your monthly income.
Last, but certainly not least, actually follow through on your strategy! Nothing will improve if you don’t take steps toward your goal.