8 Ways to Become Debt Free and Reduce Stress
For several years prior to 2019, the United States economy has not shown any signs of improvement. To make matters worse, American families have been in a bad habit of buying now and paying later. You can never become debt free in a cycle like that.
To experience debt free living, drastic changes must be made in our spending habits. Many individuals spend far more than they earn, yet when something that they want catches their eye, they do not hesitate to pull out a credit card and buy it.
The amount of credit card debt is rising rapidly and the only recourse for many is to file for bankruptcy as a way to escape their financial dilemma.
Many Americans exist basically from paycheck to paycheck, and still use credit cards to fill in those gaps. If we are to bring this continual debt spiral to a halt, a serious assessment of our financial habits must be made. Then, and only then, will we be able to become debt free.
We suggest the following 8 tips as a way to act in a more responsible manner. In addition to that, it will help to improve our money management skills. We encourage you to read on so that you can be better prepared for what lies ahead.
1. Start by analyzing and tracking your spending – What this means is to create a budget for the long term. It must be one that is workable and one that you can follow. If you want to know where your money goes, a good budget will tell you where changes need to be made.
Some individuals can do this with a tablet and a pencil, and many others fare better with a good budgeting software program. We personally prefer a program called “You Need a Budget” and it works quite well. (We are NOT an affiliate of this company)
This particular program makes a special emphasis on getting rid of debt and it helps to get spending under control and will show you where you need to make changes to become debt free.
2. Setup a spending plan – What this means is to calculate the current month’s spending based on the previous month’s income. It also means that this spending is for budget necessities and not wants and desires.
This spending plan is not a short term fix, you’re in for the long term, so make wise decisions on your spending.
3. Don’t carry your credit cards with you – Studies have determined that if you carry your credit cards with you, the temptation to buy is much stronger. These studies reveal that you’ll buy 33% more if you have a credit card handy instead of cash.
4. Include debt retirement in your budget – There are two scenarios for paying off debt that are popular with many individuals. One is to pay off the highest interest rate debt first and the other is to pay off the smallest balance first.
Whatever method works the best for you is the one to use. Just make sure to include debt repayment in your budget and when you have extra funds, apply that as well. Making the minimum payment only on a credit card will take many years to repay it.
5. Include a savings plan in your budget – An emergency fund should be established by including an amount in your budget. Financial planners recommend a fund that covers three to six months of your fixed expenses. The current Covid-19 pandemic shows that your emergency fund should cover 6 to 12 months of expenses.
An amount for retirement should also be setup. If your employer has a 401(k) plan, try to put in the maximum if possible. If your income permits, try to establish Roth IRA’s as well. There are many individuals today that are entering retirement with little funds in place.
A good goal to set is to enter retirement with zero debt. I’ve seen many individuals in retirement with a high mortgage balance and 20 years or more of payments. A sad sight. Even worse, is to enter retirement with unpaid student loans.
6. Stop all impulse buying – This is the main area of spending that causes so many problems. Entertainment and buying those expensive gadgets that we don’t really need, must be eliminated. Those surplus funds should go to debt repayment.
7. Creating unnecessary debt should be eliminated – What this means is to stop buying with credit cards, use cash only. If you ever want to become debt free, put those credit cards away.
8. Keep all debt current – There is no faster way to ruin your credit score than becoming delinquent on any of your loan obligations. It’s very important that you do whatever is necessary to keep them current.
Student loans, for one, is practically a national disaster. There are many, many, individuals that are struggling to repay this debt. If you’re one of them, there are special programs available that will allow you to set your monthly payment based on your income. Maybe some amount of forgiveness too??
A bankruptcy filing will not eliminate this debt either. In addition, the government can now attach social security benefits if a student loan is delinquent. Yes, there are many individuals who are still repaying student loans in their retirement.
I heard one guy say that student loans will follow you to the grave, and he’s probably right.
Sometimes when you’re working towards becoming debt free, you need some professional help or good advice. Don’t be afraid to use it. In many cases, a licensed credit counselor or a competent financial advisor, can help.
To become debt free isn’t easy, and requires a lot of work in many situations. But when you achieve that goal, you’ll agree, it was well worth it.