If you want to start the process of getting out of debt for good and living with financial freedom, here's the first thing you need to do:
Find out how much debt you owe.
This may sound obvious, but most people have no idea how much debt they owe. Most importantly, if you don't know how much money you owe, you won't know how to go about paying it off.
So, how do you get out of debt for good?
We're going to show you the 10 best ways to get out of debt for good using simple strategies and tips.
Let's dive in!
Best ways to get out of debt for good
1. Stop creating more debt
The first step to getting out of debt for good is to stop borrowing money. Certainly, this won't get you out of debt. However, it will prevent your situation from getting worse.
In fact, the more debt you add, the more difficult it will become to get out of debt for good. You will feel that you aren't making any progress at all.
Commit to not create more debt by cutting up your credit cards and limiting yourself to one card if you decide to keep one.
Ultimately, you will have more success with paying off your debt for good by reducing the number of ways you can create additional debt.
2. Increase your income
A great way to get out of debt for good is by increasing your income. Certainly, getting a raise at work or a new job would help but this isn't necessary.
Ultimately, you can start a side hustle or get a part-time job to add extra income each month.
Our favorite way to increase income is by starting a blog. A blog can generate hundreds and even thousands of dollars each month.
Other options to increase your income include taking online surveys, focus groups, Uber or Lyft driving, babysitting, or even freelance work.
Most importantly, you should choose something you can make enough money from to accelerate your debt-free journey.
Related reading: 10 Best Ways to Make Money from Home
3. Build an emergency fund
In most cases, people think that debt should be paid off before building an emergency fund. This approach is mainly used to allocate all funds to debt instead of savings.
However, we disagree with this approach. There will be another financial crisis and you must be prepared for it.
We hope nobody loses their job but sometimes it happens.
Ultimately, this is why we highly recommend saving 1-3 months of expenses while paying off debt and increasing that amount to 3-6 months once you're debt-free.
In fact, if you experience a life emergency without any savings, you will go back to using credit cards or borrowing money to deal with your emergency.
To clarify, an emergency fund is only used for emergencies.
This money should not be used for any other purpose.
4. Create a budget
Budgeting doesn't have to be hard and seems restrictive. Creating a budget is giving yourself permissions to spend.
Living with a budget allows you to focus on your matter and what matters.
It's important to understand your day-to-day spending, debts, savings, and investments.
Creating a budget is part of the foundation of money management. You can create an automated budget, use a budgeting app, pencil, and paper, or even a spreadsheet.
Most importantly, your budgeting method should fit your style and help you get out of debt for good.
5. Increase your monthly payments
If you only send minimum payments to your debt balances each month, you will be in debt longer.
As a result, you can accumulate more interest on your debt which causes you to pay more money.
For example, if you have a credit card with a 20% APR, that means your credit card balance gets 20% worse each month that you don't pay it in full.
By sending more money each month to your debt, you reduce your balances a lot faster.
Making significant payments can put a huge dent in your outstanding debts each month.
6. Spend less money
It's important to earn more money while paying off debt but just as important to spend less.
Depending on how much debt you have left to pay off, it may be critical for you to focus on both.
There's a lot of ways to save money that can help you put more money towards your debts. That can include eating out less, canceling subscriptions, etc.
Related reading: 20 Ways of the Best Ways to Save Money
7. Sell items you don't need
Selling items you don't need is a great way to find some extra cash quickly. Most of us have things laying around the house that we barely use and could get rid of without missing them.
Facebook Marketplace has become very common as well.
8. Negotiate your bills
It's a great idea to review your bills each month to see if there are ways to save. Consider shopping around annually for lower prices and better plans.
Most times you are paying too much for services and can find better options elsewhere.
Most importantly, use a service like Trim to help automate ways to save money on your cable, internet, phone, medical bills, and more.
Click here to sign up for Trim and start saving money today.
9. Live below your means
Living below your means is the best way to get out of debt for good. This approach can help you save money for an emergency fund and have extra cash to pay off debt.
Living frugally can include couponing, buying used items, sticking to your budget, and limiting travel.
You can save a ton of money by doing these simple things.
10. Take control of your money with Find Your Money Master Plan
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Common questions about how to get out of debt for good
In this section, we're going to answer common questions that we've received about the best way to get out of debt for good.
Is it better to save or pay off debt?
One of the main questions we get is how to approach paying off debt.
Most people want to know should I save and pay off debt or just focus on one.
You may be wondering the following:
- Do I need an emergency fund first?
- Should I set money aside for other financial goals?
- Can I pay off debt and save money at the same time?
We believe it's important to always have savings no matter where you are in your financial journey.
Most importantly, you have to do what's best for your specific situation. Everyone is different.
Many people succeed by only focusing on debt and others who can save and pay off debt.
Above all, it all depends. You may have kids, health issues, a house to maintain, parents that you are a caregiver for, etc. In those situations, you will want to save for emergencies that may occur.
We recommend reading Paying Off Debt – Is It Worth It? to learn more about this topic.
Should I refinance my student loans?
You may qualify for better repayment terms by refinancing your student loans. Also, you may get a lower interest rate that will decrease your monthly payment.
Most importantly, this will help you pay off your debt faster.
Important to note, this can be a great option if you have private loans and your credit score is higher now than when you borrowed the money.
Refinancing your student loans can simplify your finances by giving you one monthly payment.
Companies, such as LendKey, allow you to refinance your student loans. The average person can save thousands of dollars by refinancing even if you have a high-interest federal or private loan.
LendKey is a highly rated company with an A+ rating on BBB. Their process doesn't require a hard credit pull and is easy to complete.
On the other hand, you want to consider the federal benefits you will be giving up by refinancing. The income-based repayment plans and loan forgiveness aren't offered with private loans.
But, it's important to remember you will save money with the lower monthly payment, interest rates, and more.
Most importantly, you will pay off your debt much faster.
Related reading: Should I Refinance My Student Loans?
How does student loan forgiveness work?
Government and non-profit employees may qualify for student loan forgiveness.
To qualify, you must work full-time and make 10 years of on-time monthly payments under one of the following repayment plans:
- Income-based repayment plan (IBR)
- Income-contingent repayment plan (ICR)
- Pay-as-you-earn (PAYE)
- Revised pay-as-you-earn (REPAYE)
Also, you have to validate your income and repayment each year. Important to remember, student loan forgiveness doesn't apply to private student loans.
This topic is very confusing and most people end up not qualifying even after making 10 years of payments.
We recommend you create a plan to pay off your debt and not rely on the government to fix your financial situation.
Related reading: The Facts About Student Loan Forgiveness
What do I do when all of my debts are paid off?
The best thing to do when you finish paying off all of your debt is to celebrate!
Paying off debt is a huge accomplishment and an amazing feeling.
You can celebrate by having a nice dinner, taking a trip, or even buying yourself a nice gift that you've always wanted.
Ultimately, the main thing is to enjoy the goal you've achieved and live in the moment.
Also, you can now focus on investing and saving for your future. Now that you don't have the huge debt payments hanging over your head, you are ready to start building wealth!
We hope you enjoyed today's blog post on how to get out of debt for good, along with the common questions we've answered.
If you have any questions related to paying off debt, please leave a comment or send us an email.
What other tips do you have on the best way to pay off debt for good?