In the U.S., household debt reached nearly $17 Trillion by the end of 2022 and, with inflation rising, it’s bound to continue going up. It’s more important now than ever to put in the extra effort to eliminate as much personal debt as you can.
Getting out of debt doesn’t happen overnight, but that doesn’t mean there aren’t steps that you can take to get out of debt fast. With the right determination and dedication, you cannot only learn how to conquer your debt but create positive habits that keep you out of debt along the way.
No matter where your finances are or what your circumstance is, getting out of debt can feel overwhelming. But it doesn’t have to be that way. In fact, there are just as many people taking responsibility and control of their debt as there are people getting into debt. Not only that, but they are putting tried and true methods to use to get out of debt in a short period of time.
Are you struggling with a cycle of debt? Follow these simple steps to start eliminating your debt and take control of your finances today.
1. Stop borrowing money
It may seem like a no-brainer, but a significant number of people fall into the habit of using debt to fund their lifestyle. If you want to get out of debt fast, the first step is avoiding any and all situations that put you in debt. This means no more applying for credit cards, financing furniture, and test driving cars that you can’t afford to pay in cash. Removing the possibility of putting additional strain on your finances will help you focus on your financial responsibilities at hand. Borrowing can also lead to a lower credit score which can make it even more difficult to get out of debt as your interest rates and payments will be much higher.
2. Start an emergency fund
Most people are surprised that one of the first steps to get out of debt doesn’t have anything to do with making a payment to their creditors. Getting out of debt starts with making smart financial situations. “Why do I need an emergency fund?”, you might be wondering. Well, if an emergency occurs in your life where are you going to get the money to pay for it? In many cases, credit card debt begins as funding for unexpected emergencies. If you are going to get yourself out of debt, you need a safety net in case something goes wrong – emergencies funds give you the buffer you need between you and your debt.
3. Create a realistic budget
Creating a budget around your income and expenses is key to getting out of debt quickly. Having a realistic picture of your finances and what you might be able to manage concerning a payment every month can help you conquer your financial goals. The goal of creating a budget is discovering if you have a surplus (money left over) or deficit (in the negative) based on your income and bills. Over time, you want to increase your surplus to pay down your debt. There are several ways to do this, such as finding a way to earn some extra cash or eliminating unnecessary bills.
4. Get organized
There are several approaches you can take when paying off your debt. The first is making a list of your debts from smallest to largest and paying off your lowest obligations first. This is an excellent way to start eliminating your debts and reduce the number of payments you are making each month, and therefore simplifying your financial life.
The second method is known as laddering. This method is favorable because it saves you the most money over time. Start by making a list of your debts, beginning with the highest interest rate and ending with your lowest interest rate debt. Paying off your debts with the highest interest rates first makes sense financially because it saves you in costs yet to be incurred.
Regardless of the method of debt repayment you choose, or if you decided to create a systematic hybrid between the two, it’s important to stick to your commitments. Before you know it, your debt will start reducing and you will be one step closer to your financial goals.