Who wants to live a life drowning in debt? Nobody does. Debts are stressful, no matter what type and how small it is. Debts are burdensome, steal our sleep, and may compel us to work in a job just for the sake of money.
Debt-burdened people would love to get rid of debts and save money to secure their financial future. But sometimes, they don’t know where to start.
This article is for people who aren’t sure where to start to get rid of their debts and how to save money.
Remember, you can get rid of debts on your own. After paying down the debts you can also start saving for your future.
Read carefully.
How can you pay off debts on your own?
Don’t accumulate new debt when you are trying to pay off your existing debts
If you don’t retrain from your financial habits right now, then it’s impossible to get rid of debts. Living beyond your means by using a credit card is highly prohibited when you’re working on your outstanding balances.
Say “No” to new lines of credit and an extravagant life that leaves huge monthly bills to pay off.
Arrange all your debts and assess your income
Make a list of your debts with their balance and interest rate. Analyze your monthly income to fix the amount you can set aside to pay down your debts. Suppose, you have four credit cards debts and a car loan. Make sure you make payments on your car loan every month, so that you’re current on the loan for rest of your four credit card debts, first, you have to arrange them in order. See how:
| Account name | Debt amount | Interest rate |
| Credit card – A | $30,000 | 9.50% |
| Credit card – B | $6000 | 6.01% |
| Credit card – C | $4000 | 5.50% |
| Credit card – D | $16,000 | 13.31% |
Remember, to pay off debt, you have to analyze your debt and income carefully. You are not taking professional debt relief help so you have to understand the Do-it-yourself debt relief option carefully.
2 powerful DIY debt payoff methods are debt snowball and debt avalanche. These 2 methods are popular and effective in getting rid of debts.
Pay your debts with the help of debt avalanche method
In the debt avalanche method, you’re paying off the highest interest rate debt first (by making extra payments) while making the minimum payments on the other debts simultaneously.
See the box below to understand the process.
| Account name | Debt amount | Interest rate |
| Credit card – D | $16,000 | 13.31% |
| Credit card – A | $30,000 | 9.50% |
| Credit card – B | $6000 | 6.01% |
| Credit card – C | $4000 | 5.50% |
That means you have to work on the Credit card – D (see the box) first while paying the minimum to others. Once you’ve paid the credit card – D, you have to work on the second highest interest rate debt i.e. Credit card – A and continue doing the same until you repay all you repay all your credit card bills.
Pay your debts with the help of debt snowball method
Debt snowball method differs from debt avalanche. In the debt snowball method, you need to start paying off the debt (by making extra payments) with the smallest outstanding balance first, while paying the minimum on the other debts. See the below chart to understand in a better way.
| Account name | Debt amount | Interest rate |
| Credit card – A | $30,000 | 9.50% |
| Credit card – D | $16,000 | 13.31% |
| Credit card – B | $6000 | 6.01% |
| Credit card – C | $4000 | 5.50% |
So, you need to pay off the Credit card – C first (see the box) while making minimum payments on the rest. After paying off the Credit card – C, you have to start making larger payments to the second lowest balance i,e Credit card-B.
Decide the best method based on the proper calculation
Knowing different types of debt payoff methods is not enough. You need to choose the best method and apply accordingly.
Well, both the debt snowball and the debt avalanche methods help to get rid of debts. But, choosing the right one depends on some factors like your thoughts on saving money on interest, goal, and motivation.
For example, in the debt avalanche method, you can save on the interest rate but it might take longer to repay one debt.
But, if you’re facing financial hardship and your income is not sufficient, then debt snowball method is recommended because it can motivate you to stick to the debt repayment plan till you’re completely out of debt.
Moreover, it also brings back the confidence after you’ve paid off the lowest balance debt.
To decide which option to choose, you can use a calculator available online to compare both the methods.
How can you save money after getting out of debts
Paying off existing debts is not enough, you have to practice good money saving habits so that you can secure your financial future.
Here’s how you can save money even after paying down your debts recently.
Lower the usage of credit cards
You should lower the usage of the credit cards so that you do not incur further debts. Remember, credit cards are not free, you have to pay the bill in full. So, try to limit your credit card usage. It is better to use cash as much as possible instead of cards to buy items that you need.
Cut down unnecessary expenses
Try to eliminate expenditures that are not necessary to save more. Cut down gym membership that you hardly use. You can also cut down subscription cost, phone bill, Starbucks and grocery bill by proper planning. Once you cut down extra cost, you will be able to set aside money regularly. So, stop heading to the grocery store or shopping malls when you don’t need groceries or clothes. Also, avoid restaurants when you have enough food at home.
Revisit your budget from time to time
Following a personal budget is the key to paying all the monthly bills and setting aside a certain amount every month. However, it is important to revisit the budget from time to time to make the necessary changes. Follow an online budgeting app for a hassle-free budgeting experience.
Boost your income by considering a second job
To stay away from further debts and to save more, you need to work more. More income means more saving. So, search for a second job or work overtime to earn more money than your current income.
Sell unwanted items
If you have two high-end cars, then consider selling one car and stick to only one. Thus, you’ll be able to save thousands of dollars on fuel, insurance, and maintenance. You can use that money to pay off your outstanding balance aggressively. After paying off debt, save the money to secure your future.
Stop making big purchases
Stop buying anything new and especially any big-ticket item for the time being. After paying down debt, you need to curb the expenses to get back the financial health. So, try not to purchase a big item that forces you to use the credit card again. It will help you to save money and to stay away from debts as well.
Save money to build an emergency fund
Remember, an emergency can fall you into debt again. To you have to save enough in an emergency fund to avoid surprising debts. Save at least 2-3 months of savings in an emergency fund. Also, don’t use credit cards to pay for an emergency. Use the emergency fund to get out of the crisis moment.
Lastly, proper planning and determination can help you to pay off your debts on your own. But to remain debt free forever, you have to learn some good financial habits equally. You have to understand that buying more stuff doesn’t assure happiness. What is more important is financial peace.
