Life happens unexpectantly, and so does debt. If debt is starting to add up and take control of your finances, it can feel like a dark cloud is constantly looming over your life. Debt can feel very overwhelming, but it doesn’t have to be. There are 10 easy steps you can take help reduce debt and regain your financial freedom.
Before you start to repay debt, consider taking a few moments to identify what kind of debt you have. Debt can take on many forms: credit card debt, mortgage debt, student loan debt, auto loan debt, and more.
Once you know the type of debt you are facing and the amount, you can start to chart a path back to financial stability using these 10 simple steps.
- Set a Budget
The first step to getting rid of your debt is to curb your spending to be able to make lump sum payments. The best way to determining how much money you can realistically spend every month is by creating a budget.
A budget is a spreadsheet where you can enter how much money you spend on certain items every month, such as groceries, entertainment, personal items, and more. Once you know how much you typically spend in a month, you can decide what your spending limit is in order to budget enough money to start repaying your debt.
Try to keep your budget reasonable – allocate enough money to maintain your lifestyle while curbing spending to have enough money to make more than your minimum payments.
- Start with the Most Expensive Debts
Debt can easily start to pile up. If you have multiple credit cards to pay off, start by sorting your credit cards by interest rate from highest to lowest. Whichever card has the highest interest rate is likely the one you should start paying off first. Paying off the balance with the highest interest first will reduce your overall costs and save you money in the long run.
- Pay More than the Minimum
After you have determined which debts to pay off first, the next step is to start making payments. The average Canadian credit card has a monthly minimum payment of between 2 – 4% of your outstanding balance. To achieve financial freedom, you will need to make a commitment to paying more than your minimum monthly payment. This will reduce the amount you owe on the principal and lower the amount of interest you pay.
Try doubling your minimum payments or make payments bi-weekly instead of monthly. Be careful to make sure you can still pay the minimum payment on your other credit cards.
- Leave Your Credit Cards Behind
If you are serious about paying off debt, it’s crucial that you stop accruing more. The easiest way to do this is by leaving your credit cards at home. Even if a credit card earns rewards or other cash back incentives, force yourself to leave it behind when going to the store to avoid the temptation of overspending.
If you’ve completed step one and have established a budget, you will know exactly how much you can spend while shopping. Bring this amount with you in the form of cash so that you have no choice but to stick to your budgeted amount. This will stop your credit card bill from growing and help get your finances under control.
- Don’t Store Credit Card Info Online
Online shopping has gained a lot of popularity, especially with more people staying home. It has become easy to buy most goods online and some sites now let you store your credit card information to make checking out easier.
If you are committed to paying off your debts, delete your credit card information from your computer to avoid the temptation of buying things you really don’t need right now. Talk to your bank instead about getting a debit card that can be used for online purchases when necessary to avoid overspending.
- Put Spare Cash Towards Debts
One easy way to reduce your debt is by putting any ‘extra’ money you receive towards your debt’s principal. This might take the form of a work bonus, a birthday gift, or maybe a tax refund. Fight the temptation to spend that money on luxury items or a vacation. It’s more important to fix your finances than it is to own the latest iPhone.
- Ditch Unneeded Items
Unclutter your home and make some extra money by finding old items that you no longer use. Online buy and sell sites like Kijiji or eBay make it easy for you to turn unused items into extra cash.
Do your research to make sure you are listing your items at a fair value that will attract buyers for a quick sale while also putting some much-needed cash in your pocket.
- Take Advantage of Balance Transfers
A balance transfer is when you move outstanding debt on one credit card to another card. Some credit card companies will even waive balance transfer fees to entice new cardholders. This can benefit you if your current credit card has a higher interest rate than a new credit card can offer.
The catch is that you must be ready to pay off your principle. Transferring your credit card balance means carrying a monthly balance that requires on-time payments. If you cannot keep up with these payments, you can end up with a much higher interest rate than you started with.
- Change your Habits
Changing your unhealthy money habits will not only help you reduce your current debt but also help keep debt from piling up in the future. While it may seem inexpensive to buy yourself a coffee every morning on your way to work, those small purchases can add up to large sums. If you stop buying a $5 latte even four days a week, that amounts to $80 dollars a month that stays in your pocket.
Consider packing a lunch rather than buying one or, if you don’t drive, look into carpooling with a coworker instead of paying for an Uber. Take some time to think about areas in your life where you can make some small changes to help your finances without sacrificing your lifestyle.
- Reward Yourself for Milestones Reached
Debt can happen to anyone. Paying off debt should not be viewed as a punishment. Getting out of debt can be a difficult and challenging process so it’s important to reward yourself for your accomplishments.
Keep yourself motivated by setting milestones in your debt payoff plan and reward yourself when those milestones are reached. The key is to make sure your reward is reasonable and won’t stall your progress. A reward can be as simple as going out for dinner instead of cooking at home or going out to see a movie at the cinema. Instead of an expensive vacation, reward yourself with a weekend camping trip or a night out with friends.
As debt adds up, the thought of finding the money to pay it off can seem daunting but you are not alone. If you are struggling to get your debt under control or don’t know where to even start, Blanchard & Company is here to offer a guiding hand and an understanding ear.
Regardless of your financial situation or circumstances, Blanchard & Company is here to help you achieve financial freedom. Learn more about their debt free solutions by booking your free consultation today at (403) 348-5815.