At some point we have all wondered how to beat debt. Debt is the achilles heel of financial freedom. You could be earning a healthy income but still find yourself struggling to make ends meet. Debt isn’t as evil as we make it out to be. It helps us buy things like a house or a car that we would not be able to afford with a mortgage or a loan. It becomes a problem the moment we let it get out of control.
The reason debt becomes a problem for most people is that they don’t realize that their debt is higher than their income, more money is flowing out than coming in and that’s not sustainable. As I have said throughout my blog and I will say it again, budgeting is key.
How to Beat Debt
Make a budget
If you are to have any chance of beating debt you need a budget. The key is to keep track of your spending and get it under control, this can only be achieved if you know where you are spending your hard earned income.
Added advantage of budgeting is that it will help you organize and find out exactly what debt you have, whether it is credit card, auto loan, mortgage, or student loan. This is where your journey to beating debt starts by knowing what debt you have and how much it’s costing you.
Know your Credit Score
Why is knowing credit score important? Well, it will show you a complete picture of how debt is hurting your financial history. Having too much debt has a negative impact on your credit score, especially if you are struggling to keep up with payments. Every missed or late payment hurts your credit score. Look at your credit score and help it motivate you to pay off debt as quickly as possible.
Make paying off debt a priority
Look at your budget and allocate every dollar not needed on essentials towards debt payments. Don’t try to save while you have debt, it is counter productive. It may seem strange hearing not to save but what’s the point in saving and paying interest on debt. Any interest you earn on savings will pale in comparison to the interest payments on debt. Pay off your debt and then save.
Look at your debt and pay off highest interest debt first. This is not to say that you should ignore all other debt and only pay debt with high interest. Whenever you find yourself in a situation where you can make an extra payment, you should prioritize high interest debt.
Be ready to make sacrifices
For a while you may have to cut down on eating out or entertainment. Cut back on shopping, don’t get a new phone for a while. These little sacrifices add up and can provide extra money to pay towards debt reduction. It will hurt but it will pay off in the long-run and in the process you may even discover which wants you can live without.
Don’t be afraid to ask for help
You may think I can do it by myself or don’t want anyone to know how much debt you have. Don’t be afraid to ask for help. You don’t have to do it alone. If you are struggling then involve your family and let them know your situation, you may realize that they can help.
Ask for professional advice. A financial planner may be able to provide insight or advice that you did not think of.
Find ways to earn extra income
If you really want to get rid of debt then be prepared to earn extra income. Get a part-time job, or sell items you have lying around the house you don’t need.
It may seem like an uphill battle trying to beat debt but remember every effort you make brings you a step closer to beating debt.