Erasing debt is a challenge even when you have a nice income, let alone when you don’t make much money. But take heart: with discipline, patience, and persistence, it can be done.
Here’s how to get out of debt fast for free.
Take A Good Look At Your Finances
Because you need to figure out which debt to tackle first, you must take a cold hard look at your situation. Write down all your debts, listing the balances, monthly payments, interest rates, the terms, and available credit. Doing so will give you a full picture of what you’re dealing with.
On another sheet, jot down all your other monthly expenses, then separately list all the cash that you have coming in monthly from various sources.
Make That Budget
Yes, the dreaded budget. You’ve likely long known you needed one, but the task can no longer be avoided. You totally need to do it to gain control of your debt.
When you know exactly what your debts and expenses are, you can start the process of earmarking your monthly income accordingly.
A strategy called zero-sum budgeting is one way to climb out of debt. It teaches you how to live off last month’s income instead of what you think you’ll earn. It also teaches you to make conscious decisions about your cash, and to reduce waste.
Zero-sum budgeting works like this: at the end of each month, you have zero left over because you’ve applied every penny to debts, bills, and savings. This may come across as unnerving, but it can show you how to get out of debt fast free.
With this strategy, your budget priorities are debts and savings. Whatever is left over can be used for everything else. If you must find places to slash expenses, you can look to areas such as transportation and entertainment, as opposed to investments or debt-reduction.
Make An Expenditure Reduction Plan
Now that you have a snapshot of your expenses, budget, and debt, it’s imperative to cut spending. Use your budget to see where you can employ your cash more efficiently. Some ideas include buying food in bulk, clipping coupons, selling your car and walking or biking to work. Other options include eating out less, cutting subscriptions, using less-pricey packages for your internet and cell phone. You can also forego that expensive coffee bar and buy used rather than new.
Make More Than Minimum Payments
According to Money Under 30, the average American has a credit card balance of about $9,600 with a 15% interest rate. If you pay just the minimum each month, it will take nearly 12 years to erase the debt. If you truly want to get out of debt, you have to find a way to put more toward the balance than the minimum payment.
Tackle One Balance At A Time
That said, it’s likely unrealistic to expect to make above-minimum payments on each of your debts every month. And that’s okay. Just pick one obligation to pay down first. In the interim, keep making minimum payments on your other debts.
Harvard Business Review studied disparate debt reduction strategies and discovered this method can help you eliminate debts up to 15% faster than if you just spread your payments evenly among all debts.
So, now you have some idea of how to get out of debt for free. If you put what you’ve learned here into practice, you will soon be well on the road to financial recovery.