Freedom Financial Network knows that debt can be a crippling companion that constantly weighs on you. With student loans and credit card debt, it may seem as if there is no way out. But getting out of debt is a necessity because unpaid debt will lead to a ravaged credit score which could prevent you from securing favorable rates on home or auto loans. Bad credit may also prevent you from standing out as a job candidate.
The high interest on credit cards causes a vicious cycle of accumulating debt. Freedom Financial Network put this guide together to give you the tools necessary to quickly break the cycle of debt and take charge of your financial situation.
Get a Side Job
Finding some way to supplement your income can be instrumental in getting out of debt fast. Consider this money specifically earned to pay back debt. Create a separate account for the money and cut up your debit card. Drive for a rideshare service, rent out a room, or get a traditional part-time job.
Build A Nest Egg
Before you can begin to pay down your debts, you must build a nest egg. It may seem counter-intuitive to save money when you have debt, but having a nest egg will prevent you from accumulating more debt. While paying the minimum on your debts, save money to use as an emergency fund. Unexpected expenses that are charged to a credit card will only bring you further into debt and destroy your morale. Experts recommend saving 3-6 months’ worth of daily living expenses before focusing in on your debt.
Budget It In
Creating a budget is essential to freeing yourself from debt. Vice President of Freedom Financial Network Sean Fox says, “Figure out a fixed monthly amount you can pay toward your debt until you’ve paid off all debt. This amount should be more than the combined minimum payments on all credit cards and required payments on personal loans.”
Paying down debt should be treated as important an expense item as paying rent or buying food. By budgeting your debt repayment in you will have an accurate picture of what you have to spend on living expenses and can cut back where necessary.
Attack High-Interest Rates
Once your emergency fund is set up, it is time to zero in on debt. Freedom Financial Network knows high interest rates mean you pay more and more money over time. Debts with high interest are the most important to get rid of quickly.
Use the snowball strategy: pay the minimum on all debts except the one with the highest interest rate, and pay the rest of your allocated money to the highest interest rate debt. For example, let’s say you budgeted $750 to pay down your debts this month. You have three debts total, and the two with lower interest rates have a minimum of $100 each. This means you would pay $100 to each of those and then $550 to the debt with the highest interest rate every month until it is paid off.
Use the Options Available
Transfer the balance of a credit card to a new one with 0% interest rate for a year to lower your payment. Make sure you can pay the debt off in full by the end of the promotional period. Sometimes it is possible to combine multiple student loans and refinance. Be careful of poor interest rates. Freedom Financial Network recommends calling your credit card company to see if they can lower your interest rates. Many times the companies actually want to work with you.