Debt is one of those things that’s far too easy to justify to yourself. Everyone seems to be dealing with some type of it, after all. Student loans, mortgages, credit cards, lines of credit, and more are just an everyday part of life, right?
Unfortunately, not all debt is created equally. A mortgage allows you to build equity in an asset over time, while carrying a credit card balance only inflates the cost of past purchases. Even a mortgage can turn into too big of a burden if it’s too large or interest rates go up, preventing you from saving for other goals like your retirement.
When you’re tired of letting debt hold you back from your dreams and goals, you need to make a full-fledged strategy for financial freedom. Half-measures will only get you so far. By tackling your debt from multiple angles, you can reach your goals sooner and save more money in the process. Take action now to tackle debt before the situation gets out of control.
Talk to a Certified Credit Counsellor
Many people in debt aren’t aware of the different solutions that can help them solve their debt problems. One of the least intrusive options is a Debt Consolidation Program (DCP) with the help of a certified Credit Counsellor from a non-profit credit counselling agency. DCPs can stop interest charges on your high-interest credit card balances and help you create a budget and timeline for paying back those debts. Unlike debt consolidation loans, they don’t require you to borrow more money, and they don’t require you to sell off assets like you would in bankruptcy.
In addition to learning about your options, just creating a budget with a professional can be a huge help with credit card debt that you’re facing. The outside perspective of a professional might help you whittle down your expenses to just the essentials while also helping you brainstorm more ideas for saving.
Use the Avalanche Method of Repayment
If you’ve been trying to find a way to solve your debt problems, you may have heard of the avalanche method. Individuals who are dealing with multiple sources of debt can easily feel overwhelmed by the many different bills coming in. A combination of credit cards, lines of credit, store cards, taxes owed, and car loans can quickly turn into a nightmare.
The avalanche method is a way of targeting your most expensive debt to pay it off first. While you continue to make minimum payments on the other loans, you put all of the extra funds against the loan with the highest interest. This is usually a credit card, which can have an APR as high as 29.99%. Once that’s paid off, you move on to the next most expensive.
The way the math works out, you wind up paying less money in interest overall, and the difference can be substantial. That’s money that you can put toward repaying it all faster.
The alternative is the snowball method, where you pay off the smallest loans first, regardless of interest rate. The math isn’t as favorable, but it does have a psychological advantage. Once you start seeing fewer bills each month, you start to feel like you’re making real progress. That can give you the motivation you need to stick to your plan and conquer debt, one balance at a time.
Trim Your Lifestyle Expenses
Sometimes debt is the result of something going wrong. Job loss, sudden medical expenses, closing a business, or going through a divorce are all common causes of debt. Sometimes, unaffordable lifestyle choices are the cause of debt, and it can be difficult to change. Whatever brought you here, permanent or temporary adjustments can help you fix your finances.
These are just a few ideas for lifestyle changes that can help you beat debt:
- Moving to a cheaper city, especially if you can earn a similar income in those cities. Rent in big cities has become unaffordable even for people working full-time. If you can find comparable work in another market, go for it.
- Get a roommate or downsize your apartment if moving isn’t an option.
- Take public transit or bike instead of driving if it’s a reasonable option.
- Use the library for free books, newspapers, and DVDs instead of buying everything.
- Change where you buy groceries to find better deals.
When you take this multi-pronged approach to solving debt problems, you’ll maximize your saving potential and pay it all back faster. Use non-profit credit counselling, choose a strategy for repaying your creditors, and make lifestyle changes that will free up your wallet.
