Once you are in debt, it can seem impossible to find your way out. Having unpaid debt also causes an enormous amount of stress and anxiety that can have an effect on your overall health and well-being.
While it may not be easy to get out of debt it is possible. Even on a limited budget, you can navigate your way back to a debt-free life by the following the steps listed below:
Step #1 – Make a Promise to Yourself
Start carving your path towards financial freedom by making a promise to yourself that you will not acquire any new debts.
Getting out of debt usually requires making some sacrifices along the way. But you have to commit to living within your means and not spending more than you earn. Make a list of all of your current debts and total it up. Not adding anything to this number is absolutely crucial for your financial success.
Step #2 – Stick to Your Monthly Payments
It’s important to remember that getting out of debt is not a sprint, it’s a marathon. Figure out exactly how much you can afford to pay off each month and stick to it, no matter what.
Even if you can only afford a small monthly payment, paying something is better than paying nothing. And chipping away at your debt with consistent effort adds up to big results. Don’t get discouraged if it takes a while to see the light at the end of the tunnel. Dedicate to paying a certain amount each month and you’ll be debt-free before you know it!
Step #3 – Rank Your Debt
When organizing your debt, rank it in two ways: lowest to highest balance and highest to lowest interest rate.
Compartmentalizing your debt according to balance and interest rate will allow you create a plan of action for tackling your debt. These lists will help you figure out what should be paid first to avoid accumulating interest and how long it will take you to completely payoff each debt according to your monthly payment schedule.
Step #4 – Clear Your Small Debts
Your first list should include the debts with the smallest balances. Focus on paying these debts to quickly gain some momentum towards being debt-free. Send extra payments only to those debts that can be paid in 3 months or less while paying the minimum on everything else. You may find yourself getting rid of several small bills early. These small successes can help catapult you to paying off your larger debts.
Step #5 – Attack Large Debts
The second list you make should include any debt that will take longer than 3 months to pay off. But don’t worry, now that you have experienced success when crossing off your smaller debts, the bills on this list will seem much more achievable.
Don’t let expensive debts stand in your way of financial independence. Once again, pay only minimum payments to everything except the bill with the highest interest rate. Stick to your plan and watch as your debt gets smaller and smaller every month. With consistent effort and serious commitment, you can be debt-free much sooner than you may think.
Step #6 – Celebrate!
Digging your way out of debt is a huge accomplishment. Now it’s time to celebrate, enjoying the peace of mind and freedom of being debt-free!