Are you sitting on a pile of debt and wondering how you will be able to repay it?
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Whether it’s your car loan, home loan, student loan or credit card bills, living in debt isn’t easy at all. The cost of debt isn’t just limited to some grands that need to be repaid but also the mental and emotional stress that is probably keeping you awake at night. Living in debt is probably the hardest thing you have to go through as it affects every aspect of your life. You find yourself compromising on the lifestyle you wish to live because a part of your income has to go towards paying off those monthly instalments.
Even though I have never been in a position where I had to take loans, I have seen many of my close pals and family members suffering solely because they are buried under debt. I still remember how a friend of mine lived on pennies during the three years he had to pay off his education loan. Though I sometimes felt helpless seeing him live like that, a part of him absolutely hailed him for the determination he had to become debt-free.
Debt feels like an emotional and mental burden that stays with you until you have repaid every last penny of it. And when you are living in a pile of debt that seems too much to handle, all you wish for is to be debt-free as soon as possible. But here’s the thing: If you are determined to pay off that debt at the earliest, all you need to do is get your priorities straight and form a plan of action that you would stick to until you are debt-free.
Here are 11 Tips to get you started on a debt-free life:
1. Set your financial goals, long-term as well as short term
You must never hope to pay off your debt without having a set of financial goals in mind. Goals, be it financial or personal, give your life a purpose and help ensure that you live in an organized way. Your journey towards a debt-free life should always start with a goal that you wish to achieve in a stated time period. For example, if you are sitting on a debt amounting to $1,00,000 and your goal for the next 15 years is to repay it and have $1,00,000 saved for your child’s education, you should be saving around $1,200 every month to meet that goal. Anything more than that is a bonus. Now that you know what your goals are and what you need to do to achieve it, it’s on you to design every aspect of your life to meet that goal.
Financial goals are absolutely essential to living a debt-free life. Where do you see yourself standing next month, next year and five years from now? You need to have an answer for these questions in order to get started on your journey to become debt-free. Setting financial goals helps you establish your priorities. Once you get your financial goals in place, everything else needs to work around the same.
If you’re sitting on a hundred grand of loan and your goal is to be able to repay 10% of it by next month, every aspect of your life should revolve around that goal until you achieve it. Give up eating at restaurants for a month. If need be, resort to bulk buying the necessities to save every penny that you can. Take public transport instead of driving yourself to work. Remember that every short-term goal that you set out to achieve will help get your long-term financial goals in order.
Similarly, if saving enough money for your child’s higher education is what you want to achieve in the long-run (besides repaying the debt), stop spending money on things that can wait or resort to inexpensive options. Buy a two-wheeler instead of a car or postpone purchasing a household item you don’t need immediately. Whatever your goals are, it’s important to never lose sight of them to have a better financial life.
2. Make a budget and live by it
Budgeting is an important aspect of living a debt-free life. Though you can’t give up food and other necessities to save money for paying off your debt, you can create a workable household budget to make sure that you aren’t overspending or making unnecessary purchases. Having a budget for your everyday needs helps keep your expenses in check. Even though it’s important to eliminate unneeded items from your budget, feel free to make small allowances like a cup of coffee at work or a family movie date once a month so you don’t give up on enjoyment altogether. Budgeting is something that you must do even when you are debt-free as it helps you live a financially organized life besides preventing unnecessary expenditure.
Also, it’s better to save up in advance for big purchases rather than touching the amount set aside for paying off the debt. In order to track my savings for the forthcoming purchases, I use this Savings Tracker that keeps me focused towards achieving my saving goals. So if I want to take a vacation 3 months from now, I will start saving for it right now so that I don’t end up shaking my budget.
3. Discuss your purchases (however small they are) with each other in the family
Many families don’t bother to discuss purchases amongst themselves which is often the reason why they are unable to meet their financial goals. In fact, the tendency to indulge in impulse buying behaviour is most often the reason why many people are dealing with debt and its consequences.
No matter how time-consuming it is, make it a point to discuss with your partner about anything that you wish to buy. This becomes all the more important when the item in question is expensive and can affect your budget. Even if you and your spouse are earning individually, tell the other person if you have been thinking to change your phone or buy a new laptop. Make purchases that fit in your budget and help meet your saving goals.
You don’t want to feel stunned by an unknown video game purchase that your spouse made for your child. It’s important to discuss your purchases to rule out the possibility of ruining your budget. Discussing your purchases becomes all the more important when your family is living on one income and also needs to pay off the debt. No matter how small the intended purchases are, it’s important to discuss them with each other to catch hold of where the money is going.
In my family, we always make it a point to spend at least a few days discussing big purchases like household items and electronics or while planning vacations. We also make it a point to discuss amongst ourselves before giving gifts to someone outside the family to make sure that we don’t end up disturbing the family budget. Though this might sound like a hassle to many, it helps us meet our saving goals and keep the expenses in check. Even though I make my own money and have a personal savings account, I always make it a point to take my mom’s opinion before buying anything that costs more than $50.
You must also maintain an Expense Tracker to track every small purchase that has taken place during the month. It will help you point out the unnecessary purchases that can later be curbed to save money.
4. Live a Frugal Life no matter what
Nothing can help you repay that debt if you aren’t living a minimalist lifestyle that revolves around the concept of frugality. If you are determined to pay off the debt, give up on the lavish lifestyle and stay mindful of every purchase that you make. As someone who has lived on a mere monthly expense of $125 for three long years in an expensive city, I can certainly tell you that the benefits of a frugal lifestyle stay with you for many years.
I know people who relocated from Tier-1 to Tier-3 cities to save money on rent and other big city expenses. A couple of my friends even shifted to smaller homes to be able to save money on rent. Needless to say, it has been an absolute delight to watch my close friends and family walk out of debt because they cared to make some mindful choices that revolved around the sole aim of becoming debt-free.
There is no doubt that frugality is the one thing that keeps you rich and sorted. A small step towards frugality can gradually save some big bucks that can help repay a big chunk of your debt. For more information on how to go about living a frugal life, you can head over to the following posts:
- 10 ways to control Impulse Spending in order to meet your financial goals.
- Tips On How To Save More Money In College.
- 10 Super Simple Ways To Save Money On Groceries.
- How To Save Money On Your Monthly Electric Bill.
Being able to save money on your food bill can be a huge step towards living a frugal lifestyle as groceries account for majority of your spending. Meal Planning is one of the handiest ways to save money on food and prevent food wastage. I always lagged behind in this area as I had no time to plan my meals until I heard of $5 Meal Plan before deciding to give it a go. To my surprise, my food bill has reduced by half without putting in any efforts as the job is being done for me for as low as $5.
5. Live within your means
Being buried in debt points to the fact that you are spending more that you earn. A monthly salary of $5,000 cannot fund a lifestyle that costs $10,000. And if there’s debt involved, you are simply making way for a disaster later on in life. The first step to financial success is to cut back on your expenses and make sure that you aren’t spending more than 70% of your monthly income. Though this may require you to make huge changes in your lifestyle, I promise you that you will be proud of yourself for having managed to save enough money to pay off that hefty debt.
Spending more than what you are earning is the main reason why you will find yourself in debt. Hence, it’s extremely important to live within your means and spend less than what you earn. If you can’t afford to buy a luxury brand, don’t buy it if you want to avoid shaking up your financial life. Living within the means is a habit that we all must inculcate within ourselves, whether we are debt-free or not.
6. Learn to say NO, to your kids and to yourself
Learning to say NO can make a huge difference to how soon you pay off your debt. Even though it’s hard to control the impulse to buy that gorgeous dress you happened to spot at the store, make sure that you reason with yourself before actually buying it. Ask yourself if you can do without your monthly shopping trips. Teach your kids not to buy more than two toys a month as it might end up affecting your finances. I promise they will understand. Kids are smarter than you think.
As someone who has recently moved to a big city, I sometimes find it hard to say no to friends for movies and dinners because it always ends up disturbing my budget. I usually put a cap on how often I go out with friends and how many times I step out to shop. I must admit that it’s hard to control the urge to shop more often, I have gradually learned to master the art of saying No to myself.
We often don’t realize how we waste many on things that we don’t really need to impress people we don’t like. We impulsively get convinced by friends to go for vacations we can’t really afford or end up spending more than we actually planned to. Sometimes, unplanned expenses take over our financial goals and it’s often too late before we actually happen to realize it. In order to be debt-free tomorrow, you need to make the necessary sacrifices today.
7. Increase your income
It’s important to have money flowing into your bank account to make sure that you pay off your debt on time. Needless to say, your monthly income needs to be more than the monthly instalments that you have to pay to become debt-free.
While recently taking to a friend of mine who had taken a huge loan to fund his education, I realized the importance of side hustles and multiple income streams. The friend I’m referring to works as a trip leader during weekends to be able to fund his monthly expenses and works a 9 to 5 job during the weekdays to be able to pay off his debt. He also invests some of the savings from his trip-leading gig in the stock market to secure his future. Even though he sometimes complains about how busy he feels all the time, he is extremely happy to be nearing his debt repayment goals.
In order to get out of debt as quickly as possible, it’s important to expand your stream of income. Work extra hours until you’ve paid off your debt or pick up a side-hustle to chip in some extra money. This comes with a need to work harder but I promise that it will all be worth it.
Besides expanding the sources of money, you must also keep a track of your income on a regular basis. Be it your salary, tax refunds, cashbacks, dividends, gifts or interest, everything should be noted down on an Income Tracker. Make it a point to save up any extra income to pay off your debt.
8. Build an Emergency Fund
It’s hard to be buried under debt, but it’s even harder to find yourself sitting on zero savings when an emergency hits. It’s extremely important to create an emergency fund to make sure that you have enough money to fund unexpected expenses. This emergency fund will act as a cushion for you and your family during times of uncertainty while also making sure that your debt instalments are paid off regularly.
The urgency to repay your debt shouldn’t rule out the necessity of having an emergency fund for the uncertainties that come along with life. Before you give away every piece of your savings towards debt repayment, make it sure to build an emergency fund for any medical or other family emergency that might arrive. I use a proper Emergency Fund Tracker for this purpose as it helps me keep track of the progress. Having an emergency fund is your financial cushion against the uncertain life and it should be the first thing that you build before starting to repay the debt.
I have a separate bank account that houses my emergency fund. While many people like to put their emergency fund in a jar or invest it in liquid assets, it’s always advisable to keep your emergency fund at a place where it’s safe. If your emergency fund is mostly hard cash, make sure that you invest in a good-quality fireproof home safe to protect your money.
9. Stop obsessing over what your pals are doing
Peer pressure and an associated desire to live a rich life often forces us to make wrong financial decisions. You are randomly scrolling through your social media feed only to catch a glimpse of your old school friend vacationing at an exotic location, and you can’t help but obsess over his life. Well, that’s when you need to learn to let go of your wants and think of spending money on things that you actually need, or you will be driven to a life that might drown you further into a pool of debt. Focus on what you can afford and not what can drive you further into debt.
10. Stop using those Credit Cards
When you are under debt, one of the most useful ways to keep your spending habits in check is to stop using credit card altogether. Credit card comes with an urge to spend money you don’t actually have. Start using cash more often in order to spend wisely. If you don’t have enough cash for what you want to buy, skip or postpone the purchase for a later date when you’ll have cash in your hand.
11. Get a plan together on how you’ll go about repaying your debt
Here comes the part where you need to plan your debt-repayment timeline to get rid of it altogether. The timeline so created is extremely important to keep your progress in check. Remember that with every point on the timeline, you are relieving a bit of stress and walking ahead towards a debt-free life.
Getting out of debt is all about finding courage to keep going. Most of all, you need to stay motivated during your debt repayment journey in order to make it smoother for when you’ll look back at the huge pile of debt you were sitting on yesterday, the fact that you are debt free today will make all the sacrifices worth it.
