Living in debt is some of the worst pressure a person can experience. You’re constantly worried about money, payments building and it seems impossible to see a way out. However, many people exit debt – all it requires is a well constructed plan and the commitment to follow it through.
The following are 6 ways to not only get out of debt, but to make sure you never re-enter it, and to even start making your money work to grow your wealth by the time you’re finished.
1. Create a Strict Budget
You first need to work out how much you want to pay off your debt from each paycheck. Then create a budget that accounts for this and all essential items such as rent & utilities etc. Give yourself a budget for food and transportation and stick to them strictly.
2. Pay with cash
Withdrawing your budgeted amount for food, transport etc means that you can strictly learn to live on just this. Sometimes we can get carried away paying for things by card and we’re steering well clear of credit cards at the moment. Physically having the cash on you that you can spend gives you a visual reminder of when you’re close to running out. It gets you into a saving mindset and makes you question if every purchase is a necessity.
3. Identify your money triggers
Look through your previous bank statements and identify the areas where you are spending the most money. Nights out? Restaurants? Games? Clothes? Etc. Find what you seem to be weakest to in terms of impulse buying and limit the amount you spend on that on a monthly basis. Even looking through previous bank statements can be a good wake up call as to the frivolity of our spending. Identify your triggers and deal with them.
4. Pay off Your Debt As a Matter of Urgency
Now you’re doing the above three things, all your focus should be paying off your debt as quickly as possible. Hit your targets and exceed them. You’ll start to feel a sense of accomplishment as you do and the crushing pressure of living in debt will slowly start to ease. Pick one item at a time and pay that off completely before moving onto the next. This way you’re completely removing one problem rather than chipping away at one big one over a long period of time.
5. Emergency Fund
Once you’ve paid off your debt, you want to make sure you don’t end up in the same mess again. You are used to saving money now so transfer this into savings instead. The first thing you should do is start an emergency fund where you will save up 6 months worth of expenses if for some reason you should lose all income. This is a fantastic safety net to have and will make you breathe even easier about your finances.
6. Now, Make Your Money Work For You
Now you’ve your debt paid off and an impressive emergency fund, it’s time to start a savings account and start making your money work for you. This will involve saving carefully and learning about investment.
Check out our guide on ‘How to Become a Millionaire‘ for a plan on making your money work for you.
That’s it, you’ve gone from being in debt to using money to make more. Remember it requires a strict commitment, but it’s more than possible!