Follow these simple steps to get yourself organized and on your way to paying off your debt.
Image source: Getty Images.
When you’re in debt it’s much harder to be financially successful because so much of your money will need to go to making payments and paying interest. The sooner you can get your creditors off your back and become debt free for good, the better, as you can then divert all that wasted cash to doing big things.
Becoming debt free is easier said than done, especially if you have substantial credit card debt. The good news is, there’s a proven path to freedom from debt. If you’re ready to make 2019 the year that you kiss your debt goodbye for good, follow these five steps.
1. Stop getting deeper into debt
Before you can dig out of a hole, you need to stop digging it. If you’re ready to become debt free, it’s imperative you stop going further into debt. Commit now to no longer using your credit cards or otherwise borrowing any more money that you can’t pay back in full right away. You’ll need to be able to live within your means if you want to become debt free.
2. Save a small emergency fund
It may seem odd to devote extra cash to saving an emergency fund when your goal is to pay down debt. The problem is, if you don’t do this, it will be impossible to commit to not relying on debt any more. That’s because emergencies will happen, and you’ll be stuck borrowing to deal with them if you don’t have some cash set aside.
While you’ll ultimately want an emergency fund with three to six months of living expenses saved up, you shouldn’t try to save this much before working on making extra debt payments. You should, however, have a mini emergency fund of between $500 and $2,000 -- depending upon your income and the likelihood of an emergency.
Prioritize saving this emergency fund ASAP and just make the minimum payments on your debt until you do. That way when something unexpected happens, you won’t have to break out the credit cards and lose your momentum by getting deeper into debt after you’ve been working hard to pay it off.
3. Make a budget and set aside extra money for debt repayment
To become debt free, you’ll need to throw extra cash at your creditors. Which means you have to find money to do that. The more money you can find, the sooner you’ll successfully pay off what you owe.
Start by tracking your spending for around 30 days to see where your money is currently going. Then make a detailed budget that accounts for every dollar of income -- and make extra debt payments an essential line item in your budget. If you can’t find spare cash in your budget to pay debt, you’ll have to cut other expenses or increase income by doing overtime or taking on a side gig.