Nobody wants to live life with debt even though approximately 80% of Americans carry some form of it. Debts are awful irrespective of type and amount. You can lose sleep at night all while being unable to secure your financial future. If you are in debt and want to become debt free on your own, then you should know the best ways to do it.
These 11 proven steps can help you to become debt free.
Contents
- 1 1. List your debts and assess your income
- 2 2. Follow the debt avalanche method
- 3 3. Follow the debt snowball method
- 4 4. Take out a consolidation loan to pay off your multiple debts
- 5 5. Consider balance transfer method to pay off your credit card debts
- 6 6. Settle your debts on your own
- 7 7. Follow a frugal budget
- 8 8. Save money aggressively
- 9 9. Reduce the usage of your credit cards
- 10 10. Build an emergency fund to avoid further debts
- 11 11. Monitor your credit and identity
1. List your debts and assess your income
At first, you need to arrange your debts with their balance and interest rate. After that, analyze your total income to decide how much you can afford to make debt payments. To eliminate debt, you need to calculate the monthly payments that are required to pay off your debts. Use a debt payment calculator. It will help you decide whether or not you can afford the debt payments. If you can’t afford the monthly debt payments, then you should work on saving money first to pay off your debts on your own. Otherwise, you may have to consider professional debt relief
2. Follow the debt avalanche method
Remember, the highest interest rate debt is costing you more money. So, try to pay off the debt which has a higher interest rate. By following the debt avalanche method you can get rid of those highest interest rate pesky debts. You need to arrange the debts from the highest interest rate to the lowest interest rate. Start making larger payments to the highest interest rate debt while paying the minimum to the others. Once you pay off the highest one, target the second highest interest rate debt. Follow the same rule until all the debts get paid of.
See the chart-1 below ( 4 credit cards with different interest rate and outstanding balance)
Chart-1
| Account Name | Outstanding Balance | Interest Rate |
| Credit Card – A | $20,000 | 12.31% |
| Credit Card – B | $5,000 | 8.50% |
| Credit Card – C | $3,000 | 5.01% |
| Credit Card – D | $15,000 | 4.50% |
In the debt avalanche method, you need to target credit card A first since it has the highest interest rate (12.31%). You need to make large payments or extra payments while paying the minimum to the other credit card debts. Once you pay off credit card A follow the same method until you pay off all the debts.
3. Follow the debt snowball method
The Debt-snowball method works best if you have a low income or minimal cash flow. In this method, you need to arrange your debts from smallest to largest irrespective of their interest rates.
See the chart-2 below ( 4 credit cards with different interest rate and outstanding balance)
| Account Name | Outstanding Balance | Interest Rate |
| Credit Card – C | $3,000 | 5.01% |
| Credit Card – B | $5,000 | 8.50% |
| Credit Card – D | $15,000 | 4.50% |
| Credit Card – A | $20,000 | 12.31% |
Make larger payments to the smallest debt Credit card – C while paying the minimum balance on the other debts. Once you pay off C follow the same method until you pay off all the debts.
4. Take out a consolidation loan to pay off your multiple debts
If you are unable to manage your multiple debts, then you can take out a consolidation loan at a lower interest rate to repay debts you owe. It helps to simplify your debt payments. You just need to pay back this single loan within the stipulated time. Make sure you make the monthly debt payments on the new consolidation loan. There are a number of great new personal loan companies to choose from.
5. Consider balance transfer method to pay off your credit card debts
A balance transfer can help you to pay off multiple credit card debts. It allows you to transfer high-interest debts to a low-interest card with the available credit limit. You can also take out a balance transfer card with zero or a very low interest rate. Repay the balance within the promotional period before the interest rate increases.
6. Settle your debts on your own
If you think that you can’t pay off the entire debt load but you are able to pay off half of the debts you owe, then debt settlement can be a good option. The good part is, you can settle your debts on your own. You just need to convince your creditors or debt collectors about it. You can request them for the settlement by explaining your financial hardship. Tell them that you can’t afford the full debt payments and ask if they would accept a reduced amount of debt.
7. Follow a frugal budget
Most people think that a frugal budget is nothing but depriving yourself, which is not true. Living a frugal life is nothing but spending your hard-earned bucks on the necessities. So, learn to differentiate between ‘wants’ and ‘needs’ to prioritize your expenses. A budget will help you track your monthly income and expenditure. Thus, you can monitor your savings and determine how much you can set aside for debt payments. Review the budget at the end of the month so that you can make changes wherever necessary.
8. Save money aggressively
Try to save more so that you can make extra payments within either the debt avalanche or snowball method. Spend less than what you earn in a month so that you can lead a life that is within your means. Cut down unnecessary expenses so that you can set aside more money to repay debts.
9. Reduce the usage of your credit cards
Curb the usage of your credit cards to stop accumulating further debt. Carry cash instead of credit so that you can easily avoid the risk of falling into high-interest debt. Remember, credit cards are not free money. You have to make the bills in full and on time. Otherwise, you will fall into credit card debt. Most importantly, while you are trying to become debt free on your own, you should try to avoid accumulating unnecessary monthly bills.
10. Build an emergency fund to avoid further debts
Try not to accumulate new debts. After paying off your current debts, try to save enough to build an emergency fund to manage sudden financial emergencies. Save at least 10% of what you earn in a month so that you can at least have enough money with which you can manage an emergency. Avoid taking out a loan or using credit cards to manage an emergency. Using your emergency fund helps to avoid further debt in the future.
11. Monitor your credit and identity
While working on your debt it is important to monitor your credit and avoid becoming a victim of identity theft.
Cut down on all the financial habits right now! Remember, living an extravagant life using credit cards is not recommended especially when you're trying to become debt free.
Also, be patient, getting out of the debt is not impossible – but the whole process can take time.
So, work hard on your debt repayment goal to get rid of the debts as soon as possible.
This article was a guest post from Patricia Sanders. Patricia Sanders is a financial content writer. She has been praised for her effective financial tips that can be followed easily. Her passion for helping people who are stuck in financial problems has earned her recognition and honor in the industry. Besides writing, she loves to travel and read various books.