Are you in more debt than you want to be? If so, it is time to learn how to take control of your finances and ditch your debt, fast.
So you may be thinking that this is pretty much impossible. From someone who has waged war on debt for the past few years now, I’m here to tell you that it isn’t.
But what if you make very little money compared to your debt? I’ve been there, and I can tell you that you may have to chip away in small pieces to start out, but it can still be done.
Now, I don’t pretend to be debt free yet, but I hope to be one day soon. However, I’ve learned a few things along the way, and I want to share them with you.
Here are my tips on how to ditch your debt:
1. Embrace Living Within Your Means
Do you know what got you into debt in the first place? For most of us, it was the fact that we were living outside of our means and eventually, it caught up with us. I’m not judging. As I said, I’ve been there.
For me, we lived the typical suburban life. My husband and I both worked, we had a relatively small house payment (in comparison to most), we drove new cars, had a small amount of credit card debt, and we liked to shop with our cash. That equated to no savings.
So when things changed drastically within our family, and we had to move closer to my husband’s home town, it turned our lives upside down. We went from two incomes to one. We had just had a baby. The list goes on and on.
Unfortunately, when we downsized our income, we failed to realize how to downsize our lifestyle. Which then led to more debt. It was just a vicious cycle.
Now, I’m not saying everyone follows this pattern. It could be like some of my family members. They had the savings stockpiled, but an illness hit which wiped out one of their incomes, their savings account, and left them struggling financially.
So however you ended up in debt, don’t lose hope. Embrace your means right now. If that means that you have to eat pintos and cornbread every night of the week, embrace it. Because the sooner you come to grips with your financial reality, the less digging out you are going to have to do.
2. Stop Using Credit
This probably goes without saying, but if you are embracing your new standard of living, then you shouldn’t be using credit.
But there are a few exceptions. If you have rewards credit cards that can earn you cash back for things you’d already buy, like groceries, gas, or by paying bills, then continue to use them if you can practice self-control.
If not, then it is better to be safe than sorry. Put the credit cards in a drawer and don’t use them unless you are starving or your power is getting ready to be turned off. Seriously!
3. Analyze Your Debt
I’ll be honest; I have a child that is starting college this week who also needs his wisdom teeth removed. Then I have another child that needs braces. Believe me when I tell you, I know it is always something striving for your money.
But this is all the more reason we have to control our finances instead of letting them control us. We recently moved and with that came some larger expenses, and we ate out more because let’s be real, I was moving a whole homestead. I didn’t always have time to cook.
Then reality set in, we have moved now and there are real things that need to be taken care of.
So I got back on my debt-fighting bandwagon and regrouped. This included analyzing my debt. You need to sit down and write down all of your debts, including car payments, credit cards, student loans, etc.
Then write down the interest rate next to the debt. It might shock you how high some of the interest rates are. I know when I sat down to analyze my debt recently my mind was blown.
Often, when we just pay the minimum balances, we don’t realize what we are actually paying.
So have your debts and interest rates on paper so you can see what is going on.
Then you need to look through your bank statements and see where your money is going. Is it just going to bills? Are you eating out? Are you shopping?
Once you see where most of your money is spent, you’ll have a target area. If you have developed some habits, then you’ll need to focus on breaking those habits.
Are you struggling with eating out? Consider meal planning or freezer cooking to help you out.
Do you struggle with shopping? Try the envelope system. There is always a solution to help you overcome your struggle. Don’t give up!
4. Create a Debt Repayment Plan
Next, you’ll need to look at your budget and create a debt repayment system. If you have a set income, this should be pretty easy. You can write out your bills, then write out how much you make. If you have any money left over, then you’ll need to apply some of it to your debts.
But what if you have no money left? I’ll discuss this later in the article, but you should call your debt collectors and let them know what is going on. Usually, they will work with you to lower your monthly payments.
Now, if you have an unsteady income, budgeting gets a little tricky. This is what threw me through a loop about six years ago when we moved. My husband’s job presented us with unsteady income. We don’t know what his paycheck looks like until it arrives.
So at first, I tried paying all of the bills until the money ran out. Then I’d pick up with the next check. The problem I had with this is it felt like we never got ahead.
Now, I use a percentage method. I have a set percentage that goes towards bills. A set percentage goes towards debts. A percentage for groceries. Then I carry on with whatever other categories I need. This made my husband nervous at first because what if we didn’t delegate enough money?
Well, it is kind of the chance you take. I think it has helped us tighten the reigns on money because of that thought that is always tucked away in the back of our minds.
Not to mention, it allows you to build up savings this way so if you have a tight month, you still have a net to fall back on.
Either way, you’ll need to decide to either take a set dollar amount or a percentage of your income each month to pay down debts. This could be as small as $5 a month. Every little bit counts. Remember that.
Then you’ll need to prioritize your debts in the order you want to pay them off. You can either pay off the smallest debt first and go from smallest to largest.
Or you can pay off based on which debts have the highest interest rates. This is entirely up to you.
Then you’ll snowball your debt repayment money from one debt to the next until they are all paid for.
When you are trying to dig out of debt, you need to downsize your lifestyle. The less extravagant the lifestyle, the less expensive.
So if you can sell a car to get out from a car payment and purchase one that is either less costly or that you can pay for outright, this would help free up some money to put towards debt. It is a sacrifice, but it is one that leads to more financial freedom.
If you live in a larger home that you can get out from under without being upside down in it, then you might want to consider that. Smaller homes are usually cheaper on maintenance and cost less to heat and cool.
Also, consider shopping around to lower your internet bill, car insurance, or health insurance as well. You may want to consider going with an Android box instead of paying for monthly television subscription. There are all kinds of ways to downsize your life. You just have to examine and see what you don’t need in your life to be fulfilled.
6. Add Some Income
Now, once you’ve downsized your life as much as possible, you may have a few extra hours a week you could dedicate to making extra money.
If this is the case for you, then consider ways that you can make more money to help pay off your debts faster. We’ve offered a list of ways modern homesteaders can make it and also ways that you can make extra money on your homestead.
So utilize some of these tips for creating extra income to help dig you out from debt a little quicker.
7. Sell Your Stuff
When you are downsizing your life, you may realize that you have a lot more stuff than you need. If that is the case, don’t throw it away.
Instead, sell it. Everything that you make from it can go towards paying off your debts.
So if you have lots of extra clothes consider selling it online. Here is a link to multiple sites that will help you easily sell your clothing.
If you have lots of used books, you can sell those online too. Whatever it is you may have to sell, you can sell them locally or to well-known websites.
However, always remember safety first. There are scam artists out there and a few dishonest people in the mix too. So just be aware of your own personal safety.
Now that you have looked at your debt, downsized your lifestyle, sold a few things, added a way to supplement some extra cash, and created a debt repayment plan you are ready to negotiate those debts.
If you find that you are okay with being able to make the minimum payment on all of your debts and have some money left over to put towards your repayment plan, then you can skip this step.
But if you find yourself in the precarious situation of having more bills than money, then you’ll need to call your collectors and ask them to work with you. Tell them your situation and remain calm.
Be advised; some companies are super helpful while others are not. Just work with whoever you can. For the ones that won’t cooperate with you, you’ll just have to do the best you can to meet those payments. As long as they receive something from you each month, most will be somewhat satisfied.
I don’t recommend consolidation for everyone. Sometimes you can take out a loan and consolidate your debts. You can also transfer all of your debts onto one credit card with a lower interest rate.
If you feel like this will work for you, then try it. I don’t really like the idea for myself because then I’m freeing up all of this credit which could be a disaster.
So if it will save you money, and you can practice self-control, then consider this option. If not, then I’d move on to another option.
10. Seek Help
This is an option we chose to go with a few years ago when it felt like we were barely treading water. Right before we moved, I had just given birth to our son. This was a happy time, but with the high cost of medical treatment, we had a lot of medical bills as the delivery was rough on both my son and me. We were in the hospital for quite a while which equates to a lot of expense.
Well, when we moved, those medical payments became quite burdensome to us.
Finally, I reached out to Christian Credit Counselors. This is not an affiliate link, so we are in no way associated with them. It is just the company I went with. There are many more companies like them all over. Just be sure to go with a reputable company.
Anyway, I reached out to them. They negotiated my medical debts for me, put me on an automatic monthly payment plan, and we had those bills knocked out in no time flat. It then gave me the courage to shoot for paying off all of my debts early.
So if you are working on a very limited income, then consider reaching out for help. I know a lot of people are worried it will impact their credit score negatively. In my experience, it had zero impact on my credit score. Again, that is just my experience.
11. Get on a Budget
Once you have your debt figured out, it is time to create a budget and stick to it. You can do this with set dollar amounts or percentages.
But begin looking at every area of your life. You have bills, groceries, gas, savings, clothing, healthcare needs, etc. to consider.
So decide how much you want to put towards each. Then do whatever you can to stick to it. This requires discipline, but it is so worth it when you don’t have to worry about money in the long run.
Again, I’m not totally out of debt, but we are in a much better place than we were five years ago and that has to do with battling debt instead of sinking further into it.
So embrace budgeting.
12. Change Your Mindset
Finally, you need to change your mind set. It doesn’t matter how many times you pay off debt, if you don’t change your mindset, you’ll rack those credit cards right back up.
So you have to decide that you are going to go against the grain of society. We live in a world where it is acceptable to have instant gratification. This is not the same world our grandparents grew up in.
If they wanted something, they had to work and save for it. Now, we buy now and worry about how to pay for it later. We have to break that thought process, or we’ll never have true financial freedom. Your mindset plays a large roll in how quickly you can ditch your debt.
Well, you now have 12 practical tips on how to ditch your debt. It will take some hard work and retraining of your thought process, but if you stick to it and get creative, you’ll see how quickly that debt can be chipped away at.
But I’d like to hear from you. How do you handle your debt? Did you do anything creative to get debt free?
We’d love to hear from you, so please leave us your thoughts in the space provided below.