Step-by-Step Guide to Paying Off Debt

Debt comes to almost everyone at some point. Whether you need to take out loans for school, a home, or to purchase a car, you’re putting yourself in a situation where you owe someone or an entity, like the bank, money. Instead of stressing yourself out about your current debt situation, follow this guide to fully understand your debt and figure out how to get out of it once and for all!

1. Understanding Your Debt

People find themselves in debt for a plethora of reasons. Some do it out of necessity, others do it because they’re simply irresponsible, and there are people that really don’t understand what they’re doing until the bills start piling up. It doesn’t matter what happened in your situation, but what to do next does. Before you can start living your debt free dreams, first you have to understand exactly what debt you have and the amount.

There are different types that include things like student loans, credit card debt, and mortgage loans. There aren’t many who can pay for everything they ever need in life without having to borrow money from somewhere. However, if you find yourself borrowing too much, that’s when things start happening in your life, like unnecessary stress, worrying about repayment, and the inability to continue living the way you are without adding to that debt number.

2. Evaluating Your Financial Situation

After you gather all the necessary documents, add the debts to your other financial obligations and compare them to your income. Then, you can start to better understand where to go next. Also, make sure you track your spending habits outside of your debt payments and routine bills. By doing so, you’ll be able to create a budget that’s accurate and realistic for your situation.

3. Creating a Plan for Repayment

Now is the time to put everything you’ve learned about your debt and financial situation into action. There are several options when it comes to repaying your debt responsibilities. Here are a couple to consider:

  • Snowball Method: Paying off your smallest debts first and then move on to larger ones.
  • Avalanche Method: Paying off loans with the highest interest rates first.

If you’re looking to see instant gratification, it’s better to go with the snowball method. However, the avalanche method will typically save you more money in the long run because it reduces those higher interest rate payments faster.

4. Maximizing Your Efforts to Pay Off Debt

Is there anything that you could do to help you pay off your debt faster? Chances are there’s at least somewhere you can cut corners. Instead of spending money eating out or buying coffee, do those things at home. Sure, you’ve probably heard it a thousand times, and it’s okay to treat yourself once in a while. but remember what your ultimate goal is. Then, it’s up to you to decide what’s more important.

You could also think about getting an additional job. With the way technology has advanced, there is an assortment of side gigs that come along with it. Look for things that you can do for a few hours a week from home. Every little bit will help you pay down your debt faster.

Lastly, don’t hesitate to reach out to your lenders and check into options for new ones. Sometimes you can get your interest rate lowered or negotiate a new payment plan. You won’t know until you ask!

5. Staying the Course

Perhaps most important is remembering to stay the course. Whatever plan and budget you’ve figured out, stick to it! As soon as you start deviating from that plan, you’re only going to hurt yourself. Remember what you’re doing this for and visualize what your life will be like when you are finally debt-free.

Also, don’t be afraid to celebrate the little achievements! Whether it’s paying off a smaller debt or reducing the number of times you buy that expensive coffee every week, you’re moving in the right direction and you should be proud.

6. Creating Financial Stability for the Long Haul

After you start seeing some movement and changes in your financial situation, it’s time to start looking toward the future. First, don’t fall back into the same cycles that put you into debt in the first place. Next, consider where you may be able to make some passive income with the money you’re saving from those monthly payments. Lastly, be sure that you have an emergency fund in place so that you don’t resort to credit cards or bank loans if something goes catastrophically wrong.

7. Enjoying Your Accomplishments

That’s it! You’ve reached financial freedom and are now debt-free! After focusing and putting in the work for so long, you probably feel like you’re living in a dream, but the job doesn’t stop here. Now you have to focus on the future and what you want to do next. Are there goals you want to achieve, like buying a second property, a new car, or investing in something important to you? It’s possible, as long as you follow the guidelines that you laid out for yourself to get out of debt. If you try to reach those goals with loans, you’re right back to square one.

Instead of allowing yourself to live a life full of stress and anxiety because of your accumulated debts, now is the time to take action. The sooner you start making changes, the quicker you’ll get yourself out of debt once and for all. Figure out where your money is going, set a budget, and stick to it, and soon you’ll be living a financially free lifestyle with a peace of mind you’ve never experienced before!