Tired of being in debt? Dreaming of the day when you achieve financial freedom for good? If so, you’re not alone. In fact, according to a 2020 Experian study, the average American carries more than $92,000 of debt. The good news? There are steps you can start taking today to work towards long-term financial independence.
Know Where You Stand
It all begins with knowing how much debt you have accumulated. This might sound obvious, actually sitting down and calculating your total debt is an important first step. After all, most people have debt that is scattered across many different sources, ranging from credit cards to student loans and mortgages. By getting the “big picture” of how much debt you actually have, you’ll be able to create a better game plan to pay it off.
Check Your Credit Score
Now is also a good time to check your credit score. First, doing so will help you know where you stand when it comes to your credit, which can be affected by things like your debt-to-income ratio and whether you make your payments on time. If you have good credit, you may even qualify for a debt consolidation loan, which can help you pay down your debts sooner while potentially saving you on interest.
Checking your credit score can also alert you to potential errors on your report that can be disputed and resolved.
Explore Debt Repayment Methods
Now that you have a better idea of how much debt you have, it’s time to explore some different strategies for paying it down. The two main strategies that people use are the debt avalanche and the debt snowball.
The debt avalanche focuses on paying off your highest interest debt first, allowing you to cut down on total interest paid out of your own pocket. With the debt snowball method, on the other hand, you pay off your smallest debt amounts first. With each account that is paid off, you free up more money to pay ahead on your other debts until everything is paid off.
Create (And Stick To) a Budget
After you’ve decided which debt repayment strategy makes most sense for you, it’s time to create a budget. This involves tracking how much money you have coming in versus how much you spend each month. When creating a budget, be sure to categorize your spending into essentials (such as rent/mortgage, utilities, and groceries) and non-essentials (dining out, entertainment, etc.).
From there, consider cutting back on non-essentials so you can free up more money to pay off your debt. Once you have a budget that works for your debt repayment strategy, stick with it.
Consider New Income Sources
If you want to pay off your debt even faster, explore “side gigs” and other income sources. From driving for a ride share service to selling off clothing you no longer wear, there are plenty of potential sources of extra cash these days.
Get Started on the Path to Financial Freedom Today
With a little bit of planning and persistence, you can achieve financial freedom by paying off your debt sooner. Follow these practical tips and you’ll be well on your way!