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No matter how skillful you’re in accomplishing tasks in various fields, but if you’re better at borrowing money, you’ll spend your entire life as a slave of credit card companies, banks and money lenders. Living a debt-free life is every human’s dream, especially if you owe a lot. But attaining that goal is not as easy as borrowing money. It requires a lot of planning and ample self-discipline. Here are a few tips and techniques that you can embrace to get rid of your debts by the end of 2023.
Tips to become debt-free by the end of 2023
Earn more to become debt-free.
A lower income level can be the primary reason for your higher level of debt. Hence, try to increase your income. You can increase your monthly cash inflow by changing the job, negotiating for a raise with your current employer, taking up a part-time job or monetizing your passion. And use this extra income to pay off your debt. If you work hard for a few months, you can see a significant reduction in your debt balance.
Besides, use all your financial windfalls for debt reduction. It aids you in coming out of debt much faster.
Change your spending habits
Do you have the habit of making impulsive purchases? Do you feel tempted seeing the ‘SALE’ board in shops or ‘EOSS’ on apparel retailer sites? Do you spend without a plan? Do you order most of your meals?
If your answer to these questions is yes, then it’s time to change your habits, as these are the ways through which your money leaks. Let’s check how you can curb your bad spending habits.
- Make a budget before the start of each month and spend according to it. It helps you to keep track of your expenses and stop overspending. If you spend without a budget, your saving account will dry up before the end of the month and then you’ll be forced to use your credit card to make payments in the remaining days of the month.
- Remember to make a list of items your need to purchase before stepping out for shopping and stick to it. Thus, you can stop yourself from buying unneeded items.
- Plan all your big-ticket purchases. First, save for them and then buy them; in this way, you can reduce the use of credit cards.
- Reduce dining out or ordering food. During weekends, plan your meals for the next week. It’s not only good for your pocket but also for your health.
- Stop impulsive buying. Data shows that an average American spent $314 per month in 2022 on impulsive purchases. Usually, grabbing things spontaneously increases your debt as they are out-of-budget purchases. Hence, before making their payments, ask yourself, what is the prime motive for buying these items?
Reduce your credit card dependency
You should understand that your credit card is not a tool to satisfy your wants. No doubt it’s a powerful financial tool, but you should use it wisely. On the other hand, if you use your credit card for all your purchases, you’ll spend more than what you earn and will soon be under a huge debt burden. Further, overuse of the credit card will leave a stain on your credit score as well. Try to keep the utilization rate of your credit card below 30%. And develop the habit of paying through your debit card or cash to purchase everyday items and groceries.
Pay your credit card balance on time
If possible, pay your credit card balance in full every month before the due date. This way, you can avoid adding more to your debt and paying interest. If you can’t pay the entire balance in a particular month, at least pay more than double the minimum amount.
If you have a good track record of paying the balance, you can negotiate for a low-interest rate with your credit card issuers. A lower interest rate enables you to repay your debt faster. Remember use credit cards to become debt-free, not to pay interest to bank.
Consolidate your debt
Many of you may carry more than one debt simultaneously. And handling multiple debts at a time is like managing a mess. Hence consolidating all or a few of them is a good idea. One payment will not only make your debt manageable, but also, you’ll be able to keep tabs on what you have paid and what you still owe. Remember becoming debt-free is a stepwise and planned process.
Many personal loan lenders offer debt at lower rates than credit card interest rates. Therefore, paying off your outstanding credit card balance with a low-interest personal loan makes sense.
You can also try a credit card balance transfer to lower your interest burden. But before opting for a credit card balance transfer, read its conditions to understand all charges associated with it.
Create an emergency fund
If you have not yet created an emergency fund, set up one soon. Keep aside 5% of your income every month for this. Your emergency fund should include at least your six months’ basic expenses.
With an emergency fund in place, you won’t need to take loans to meet unexpected financial requirements, such as unplanned repair work at your home.
Try the fireball method to pay off your debt
The fireball method is a hybrid of debt snowball and debt avalanche and helps to repay high-interest-carrying debt faster.
- As per the fireball method, you should categorize all your debt as ‘good’ or ‘bad’. Secured debt and low-interest rate debt fall under the ‘good’ category, while the remaining slide under the ‘bad’ category.
- Now, based on the outstanding balance, list ‘bad’ debt from smallest to largest.
- Pay the minimum amount in all ‘bad’ debt and channel the excess fund to the smallest ‘bad’ debt.
- After you pay off its balance in full, you can move to the next smallest ‘bad’ debt.
- While paying off your ‘bad’ debt, you should also repay the ‘good’ debt as per its regular schedule.
While you are in the process of paying off your outstanding debt, try not to add any new obligations to it. It can make your journey more challenging. Also, remember to celebrate each pay-off milestone. It’ll help you to stay focused and motivated.