Monday, 29 June 2020

10 Tips To Get Out Of Debt And Become Debt Free


When people borrow money what do they do with it? Especially as they know that they have to pay back, so why do they take the money in the first place?. I thought that was a really powerful question because that question opens up an entire world of questions around the motivations for why we take on debt. In this article, I am going to talk about 10 tried and tested tips for how you can work towards becoming debt-free. Before we dive into these 10 tips for becoming debt-free, I just like to highlight two important principles. Which if you take this away beyond the 10 things I am going to mention, you will have taken away a lot of value. 


The Borrower Is Servant To The Lender

If you are currently owed people money you will essentially below there thumb. They can say to you, jump, and you have no choice but to jump. Or sit down over there and you have no choice but to sit down over. And you get to ask yourself, how have I got myself into this position where I am completely subject to a lender and what is my way out. This first principle is very critical that the borrower is a servant to the lender, and our goal from writing this article is to help you get out of that situation.


Diligent With Little, Diligent With Much

If you are able to be diligent with the very little amount of money you have in your life, you will most certainly be able to be diligent with a lot more money when it floods into your life. The idea of being in debt simply an indication that you might not currently be living very diligently with the very little that you might have in your life at the moment. So I am very hopeful that today's article will be able to unpack ways in which you can start to work towards a life of more freedom from debt.


let's work through it and start to unpack these 10 ideas for how you can work towards a debt-free life.


1. Budget Aggressively

I use the word aggressively on purpose because a lot of us think that budgeting is a nice to have. If you are somebody in debt, the budget should be like your light in a dark room, essentially, it should be the thickness guiding you towards achieving your goal of becoming debt-free. A budget is a plan of how you are going to distribute your income as it comes into your life. I use it in my life today even as somebody whose debt-free as a way to make sure that we are allocating our resources as effectively as possible, and if you give that budget the respect that it deserves, the budget will give you the respect that you deserve and will help you gradually work towards becoming debt-free. 

A good way to look at this is to start to create budgets around different areas of your life, say, food expenses, home expenses, car expenses, but to set those budgets and most importantly do whatever you can to stick to them, because if you can stick to your budget, you can gradually then start to work towards a place where you increase the buffer in your life, ie, the extent to which you are living below your means, creates that buffer which can then go towards helping into is your debts.


2. Focus On Slashing Non-Essential Spend

I was speaking to a few friends recently who were high earners and they were saying to me that they just feel like their lives are very expensive. Which is weird because you think that people who are making a lot of money, should have a lot more money left. But no. People tend to have livestock creep and start to justify to themselves that all the expenses in their lives are reasonable expenses. 

Your gym expenses, car expenses, phone expenses, outgoing expenses, take away expenses, you justify these because you just feel like, you know what? these just feel like things I should not be paying for. A good way to start to work towards debt freedom is to do an audit of your expenses and analyze them into two buckets, essential spend, and non-essential spending. And what you want to do is to be absolutely strict on categorizing the right expenses as none essential. Because if you are able to do that, you can then take a pen and paper and reduce those expense because if you can reduce your non-essential spend and focus your priorities on the essential expense, then you can start to create additional buffers that you can put towards paying down your debt.


3. Use The Envelope System

This is another take on the budgeting idea, but one that forces you to move away from using digital ways of paying for things to using cash and putting them in envelopes. The idea here is that you have different envelopes that are used to represent the key expense areas in your life, and you take out the exact amount of cash that you need for these various expenses and you put them in the envelopes and those amounts are all you focus on spending every single month as a way to help you essentially keep away from overspending and commit any excess cash you have, towards paying down your debt.


4. Make Extra Money

This might sound obvious, but one of the biggest reasons why a lot of us cannot service our debts is because we don't make enough money to be able to service those debts. This is a really interesting one because you can make this as fun as you want, one thing I find that really helps with being able to make this interesting enough is to gamify it and turn it into a bit of a challenge. Set yourself to extra income goal, say, for example, you might say that next month you might want to make an extra $200 to $300 per month. The challenge then becomes seeking out interesting ideas that might help you achieve that goal towards helping you pay down your debt. It might be that you do extra hours at work or you might be the explore side hustle ideas, online or offline, that will help you be able to generate some extra money. You can check this link to see some best side hustle idea


5. Make Over Payments

A lot of people have debts that they have ignored and focus simply on making the minimum monthly payments that are required to service those debts. Which is totally the wrong thing to be doing. What you should be doing is making overpayments on your debt, because that helps you reduce that debt because that debt compounds a lot slower and therefore gets you closer to debt freedom a lot quicker. Because you are making overpayments they can help you save anything from months to even years on the period that you are supposed to be paying that debt off. Overpayments are powerful, no matter how much you decide to overpay, you are certainly getting yourself a lot closer to debt freedom by doing so.


6. Sell An Asset

You can look at this in two ways. You can either sell things you have lying around your home to which you know you could do without earning it. You can sell those and make extra money and commit that towards paying off some of your debt. The second is to apply your knowledge and experience towards creating an asset that you can then go ahead and sell on an ongoing basis towards paying off your debts. These could be anything from Ebooks, digital assets, anything that means that you are using what you already have in your hands to create a product that then goes out in the world to generate you some extra income towards paying down your debt. 

This might sound complicated, but it is easy because this article I am writing, for example, is a classic example of what you can do to generate extra income to pay down your debt. I am writing these article which are digital assets that in some way generates an income for this site, in the same way, you could apply that same idea towards creating say an online course or something similar that you can sell towards helping you paying down debts and working towards debt freedom.


7. Apply The Debt Avalanche Method

Which is where you make a list of all your debts and you make minimum payments on all of them except for one. You pick the one with the highest level of interest and you focus all your excess amounts of money on paying down that particular debt with the highest level of interest. What this does is that it then reduces for you, the overall level of interest that you might be paying on your debts because you are focusing a lot of your resources on paying off your debt which has the highest level of interest.


8. Focus On The Debt Snowball Method

A bit like a debt avalanche method with this you are doing quite a similar thing but except this time you make a list of all your debts, you pay the minimums on all of them, but you then focus all your extra resources on the smallest debt amount. What is really super powerful about this is that you are aiming to pay up the smallest amount and therefore apply your additional resources to the next smallest amount, and then once you have paid that off. Apply your resources again to the next smallest amount. What this is really good for, it giving you small wins early because it gives you a great deal of motivation to know that you empowering yourself and paying off and seeing them disappear gradually one after a time. But it would down to your personality and which one you find to be most suitable whether it is a debt avalanche method or a debt snowball method. 

Read How To Get Out Of Debt Fast - Debt Snowball vs Debt Avalanche

But personally, I prefer the debt avalanche method because I am one to focus on the highest interest and hit that first before I then move on to the next highest level of interest 


9. Remortgage Your Debt

There are a ton of people out there with debts that they know that can get a lot cheaper but who have not found the time to go at it and do the work of finding themselves much cheaper deals. This is such an easy win because it is one that you can do today and start to see results. Any change in the rates that you are paying for your debt, provided that changes downwards we help you work towards becoming debt-free a lot quicker. You can also apply this idea to other types of debt you have. Which you might be able to consolidate as a way to get your overall interest expense on all your debt a lot cheaper


10. Focus On A Lifestyle Change

Here's a question that you should absolutely make sure you can answer. Are you currently optimizing your life for status or for freedom? Are you somebody who at the moment has a nice car, lives in a big house, has all these various expenses for lots of really nice things, and therefore feels that they are being choked every single month because they don't have any money left over. Or are you somebody who is cutting down in every aspect of their lives, cutting down on the car expense, the home expenses, their food expenses, but doing that because they are essentially trying to buy back their freedom. 

The difference between these two is that the person who is optimizing their life for freedom has a great deal of self-awareness and knows exactly what they want and don't have their lives been driven by the actions of other people potentially. Because a lot of us in society do exactly what we see other people are doing. We see people with nice cars, we, therefore, want nice cars, we see people going on nice holidays, we want nice holidays too. whether we can afford them or not we put them on our credit cards.

This idea of a lifestyle change is a very gradual one and one that begins by asking yourself some really important questions, like, for example, the things you have in your life at a moment why do you have them. If you've got a really nice car ask yourself why do I have this nice car. If you are paying for particular expenses that you know you can do without, ask yourself why are you paying for those expenses. The goal is to live minimally and work towards creating a very simple and yet enjoyable life. One which is countercultural to the way that most of our consumerist society currently lives.






Conclusion

I hope you have enjoyed this article today on the 10 tried and tested tips to help you work towards becoming debt-free. Debt is a massive problem and I know it's something that without a doubt, is likely to be affecting you in your life today

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