When it comes to eliminating debt, there are many ways to go about it. However, it essentially boils down to these three areas: 1) reducing expenses, 2) selling unneeded household items, and 3) increasing your income (if possible).
Getting out of debt is a worthy goal and should be pursued with vigor. A half-hearted attempt isn’t likely to produce the results you’re looking for. You will probably make some mistakes along the way, but if you remain diligent and you stick to your plan, you will eventually see the light at the end of the tunnel.
That raises another important point. Getting out of debt – depending on how much money you owe – is usually a long-term proposition. It is often measured in years rather than months, but unless you’re carrying a significant load, two to five years should be more than enough time. Don’t get discouraged if you don’t see immediate results.
Here are 10 ways to eliminate your debt.
1. Make a Budget
Many of us don’t actually have an accurate picture of our spending habits. We might know our account balance at any given time, but we need to develop more awareness around what our money is actually going towards.
If that describes you, it’s time to sit down and create a budget. You don’t necessarily need exact figures at this stage. The goal here is to take some positive action, which should lead to more positive action. A budget should also help you to see some areas where you can cut back on some spending immediately.
2. Track Your Spending
You’re going to spend money; it’s inevitable. However, instead of racking up expenses haphazardly and never taking note of them, you should begin to track your purchases; if possible, all of them.
It’s good to make a budget, but unless you’re actually sticking to it, it isn’t of much use is it? The only way to know if you’re on-track is to monitor your outgo. If you have a smartphone, you might consider downloading the Mint.com app to help you track your progress.
3. Iterate Your Plan
Rarely if ever is your first plan of attack going to be perfect. You will very likely need to revise and iterate as you go. If you have made a budget and you’ve been tracking your spending habits for a while, you will be better able to assess and make changes to your plan as necessary.
This is not about making a new plan altogether. What you want to do is make gradual tweaks and improvements to your existing plan. When the balance begins to tilt in your favor, you will very likely be able to pay off your debt with greater efficiency.
4. Increase Your Income
There are a variety of different ways of increasing your income, some of which will be addressed in more detail in subsequent points. The reason you’re in debt is because you’re spending more money than you’re making, so it serves to reason that supplementing your income should help you turn that situation around.
Take some time to explore your options, but don’t get sucked into a get-rich-quick scheme. If it allows you to get rich quick, you could lose it just as quick. Focus on practical, everyday activities that your schedule will actually accommodate.
5. Work More Hours
This is quite possibly the worst long-term strategy for increasing your income. Of course, you can take on more jobs to help you pay your debt off, but there is always a cost associated with taking on more work (time, energy, opportunity, etc.). In other words, at some point you’re only going to see diminishing returns.
If you’re going to increase your hours, don’t look at it as a long-term strategy. It may help in the short-term, but there are definitely better long-term opportunities. Keep your day job and work longer hours for a while if you have to, but try to supplement your existing income with other value-producing activities.
6. Build a Business
Perhaps the best long-term strategy for debt elimination and personal wealth is enterprise. Not all businesses are equal. Some will initially gobble up most of your time and money, even if they have significant long-term potential.
What you want to do is look for low-cost, low-overhead opportunities that don’t require additional education on your part. There are many low-risk options available today, like blogging, direct selling or consulting. Examine your options.
7. Streamline Your Lifestyle
Debt elimination may require drastic action. If you are paying a mortgage on a home, it may be prudent to sell the house and rent a more affordable space. If you’re driving a brand new vehicle, you may want to sell it, buy a used vehicle and put the difference towards debt.
See if there are any subscriptions you can cancel; magazines, cable, Netflix, etc. See if you can switch over to a no-fee bank account or reduce the number of transaction fees you incur. In every regard, streamline and simplify your lifestyle.
8. Reduce Spending
There is probably a certain lifestyle you are used to, but chances are good that there are areas where you can reduce it, knowing that it’s only a short-term sacrifice. Instead of eating out, you can bring lunches with you. If you do eat out, you could pass on the soda. You could buy only sale items at the grocery store.
There are a variety of practical ideas you can implement. The type of sacrifice you’re willing to make is ultimately up to you. The important part is to realize that there are very likely a variety of areas where you could be spending less.
9. Prioritize Your Spending
As you begin to increase your income and reduce your outgo, you’re going to want to begin prioritizing where your money goes. It has been said before that you should tackle your biggest debt amount first, but the Amass A Fortune way is to put a priority on the smallest debt.
You should also prioritize spending in all other areas; not just debt. If there is something you want but don’t need right now, you can still put it on your list. Just make sure that it goes low on the priority list. It’s good to keep yourself motivated and to be able to reward yourself as you reach milestones.
10. Pay off Debt
Of course, all of your efforts are for naught if you don’t actually begin paying down your debt. Quite frankly, credit debt is one of the worst forms of debt to have, so if you’re carrying any amount, it’s time to eliminate it as soon as possible.
Furthermore, you might want to consider consolidating your debt if that option is available to you. It isn’t of much use if you end up paying more in interest, but in some cases a consolidated loan will allow you to pay off your principle faster.