Some people may ask, "Is it possible to be debt free?" Debt can seem like a bottomless pit, but there are ways out. If you're trapped by debt at the moment, know that there is light at the end of the tunnel. Also know that there's no quick tricks to get rid of all your debt. The process will be slow, but the financial freedom is worth the wait. The following four tips can help you shed the debt burden.
Pay extra when you can
First, it's important to save enough money for an emergency fund. Typically, you want enough money saved up for six months worth of expenses. This will give you a lot of freedom in case any unexpected expenses ever come up. Think about it, how many times have you gotten a flat tire or needed to call a plumber unclog the pipes? An emergency fund will help in these moments.
Once you have an emergency fund, a good habit to get into is to pay a little bit extra towards your debt when you can. If you have a little leftover after you get your paycheck, use it to pay off debt instead of buying something else. It may not seem like you're doing a lot, but over time those extra payments can save you thousands. These prepayment calculators can show you how. Also, remember to pay off your highest interest debt first and work your way towards the lower interest loans.
Always remember your goal to be debt free
Always remember your goals. Tracking your progress and being aware of where you want to be will help motivate you. There are plenty of tools that can help you do so, such as Mint. Mint can track all of your loans for you and let you know when a payment is coming up. Using such a service can help you monitor the progress as you slowly work on paying down your debt. Mint will also help you make a monthly budget to so you can track where your money goes.
Credit monitoring services, such as Credit Karma, can also help you achieve your goals. These services can look at your situation and recommend credit cards or refinancing opportunities that will fit your situation. Using this service can help you become debt free faster.
Avoid Unnecessary Purchases
Don't spend money on things you can't afford. If you have to take out a loan to afford a vacation or a piece of jewelry, it's probably not worth it when you're still in debt. A good rule of thumb in these situations is to talk to a friend and see if they think taking out a loan is a good idea.
This doesn't mean that you should never use credit to finance something. It may be near impossible to buy a car or a home without a loan. In these cases, it makes sense to finance them at the best rate possible. Credit agencies, such as Experian, have services that can help you find the lowest rate loans in these cases, based on your credit score. You may also have a credit card that gives you rewards, which is great, as long as you only use what you can afford to use.
Use Alternatives to Debt
You could also turn towards alternatives to debt for your financing needs. One new method that has become popular recently is an Income Share Agreement (ISA). In these arrangements, a person will pay a small percent of their income for a set period of time in exchange for funding. There is no interest or debt, you just pay that percent until your obligation is complete. ISAs also include downside protection. This means if someone loses their job or decides to go for further education, their payments pause and they don't have interest piling on. If you have student loan debt and are looking to refinance and be debt free, Defynance is working on an ISA for college graduates with debt.
