Being free of debt is a goal that many people strive to achieve. It is a way of life that allows you to enjoy less stress and more freedom to pursue your dreams.
In order to truly master the art of debt-free living, it’s vital to understand the principles of debt-free living and practice them consistently.
A recent study shows that the cost of living is rising faster than income, and many Americans are being forced to go into debt to make ends meet. And with higher interest rates, carrying this burden is more expensive than ever before.
Getting back into the black can be a daunting challenge, especially if you have no idea how to start or how to make real progress. A skilled financial advisor can help you create a strategy for prioritizing your repayments and saving money in the long run.
Let’s take a closer look at how you can ditch debt for good and start building personal wealth.
Understanding the Basics
When it comes to escaping debt, there’s no one-size-fits-all approach. Everyone’s situation is unique, and the best way to proceed depends on your individual circumstances.
As an experienced financial counselor, I’ve seen many people struggle with this problem, but I’ve also seen many clients overcome this roadblock and be able to pay everything off and start living a financially secure life.
The first step in the journey is understanding what your goals are. Debt-free living means not incurring any new debt, and it’s not necessarily the right choice for everyone. It includes not borrowing money from any source, including online banks, retail companies, or other lenders, instead relying on your own resources to purchase what you need. Your car is paid off and you don’t buy luxury items over time. You spend appropriately and have plenty of funds for a rainy day.
If this sounds ideal, then assess your current financial situation and take an honest look at your income, expenses, and outstanding debts. Include all credit card balances, student loans, and living costs, and calculate the total amount that you owe. Then, compare this number to your monthly income to get a better understanding of where you stand and the best way to proceed.
Making Moves
To find success in this venture, you need to make positive changes and build healthier financial habits. This includes saving money and living within your means.
Following a budget is key. This is a crucial tool for getting and staying out of debt as it encourages you to track your expenses and identify areas where you can cut back. Online programs and apps can help you stick to your goals.
Review your list of fixed monthly payments, such as rent, utilities, and insurance, and then add in discretionary spending, such as entertainment, takeout food, and shopping. Be honest with yourself about your behavior and look for areas where you can cut back.
Work with a professional counselor or financial expert to develop an achievable plan for paying off your existing debt. It should include a complete list of your obligations, how much money you’ll be able to dedicate each month, and how long you anticipate it will take to reach the debt-free zone.
It won’t happen overnight, unfortunately, so celebrate regular milestones to ensure that you stay enthusiastic about your progress.
Some advisors recommend that you prioritize your debts and focus on paying off the ones with the highest interest rate first, while still making minimum payments on the others. The goal is to get rid of those which are costing you the most money in interest charges, which saves you money in the long run.
Another strategy that can enable you to eradicate your debt quickly is the snowball method. This approach involves paying off your debts in order from smallest to largest, regardless of the interest rate.
As you pay off each one, you use the money you were dedicating to that debt to eliminate the next on your list, creating a “snowball” effect. This builds momentum as you go, which can help keep you motivated and on track. Consult with an experienced debt counselor to discuss which options are best for you.
One particularly sticky problem for many is student loan debt. No matter how painful this debt becomes, there are some remedies for limiting the damage. While the Supreme Court hears arguements regarding student loan forgiveness, there are other steps you can take to get back on track.
While it’s tempting to bury your head in the sand, being proactive can save you literally thousands of dollars. Bring your student loan documentation to a pro financial advisor who reach out to your lender and help you consolidate, refinance, or settle for a lower payoff amount.
Always Be Prepared
A major aspect of debt-free living is building a substantial emergency fund for situations like unexpected medical bills or car repairs. This will ensure that you’re prepared if anything should happen and you won’t need to borrow money to cover costs. You should have at least three to six months of living expenses put away for your family in case of an emergency.
Once you’re free from constantly worrying about your debts, you’ll feel your stress levels decrease. Growing your savings, investing wisely, and preparing for the future will help you achieve the financial freedom you’ve always wanted.
Partnering with a fiduciary advisor who offers personalized guidance is the best way to overcome debt and start building wealth. Get the individualized strategy you need to improve your financial outlook — reach out today!