This is the third installment of our four-part series on Debt Management. You can access Part I and Part II by following these links.
Understanding from your monthly budget, you are now aware of how much you can allocate towards clearing your debts each month, and you have a designated timeline for when you wish to be fully debt-free.
So, what’s the best way to stay on track? Your debt clearance plan might span over several years. For instance, it took my spouse and me 45 months to accomplish our goal. So, how can you keep the motivation to become debt-free?
SELECTING A DEBT CLEARANCE STRATEGY
Primarily, you ought to identify what will inspire you to consistently meet your debt repayment schedule. Typically, this involves deciding on a suitable debt clearance strategy that addresses your situation. Here are two common approaches:
Highest Interest Rate: Should you clear your debts starting with the ones with the highest interest rate? Although mathematically this is the most optimal method, your debt with the highest interest might also be your largest. This might feel daunting as you may not immediately see the progress you desire.
Lowest Balance: Alternatively, you might opt to focus on debt with the smallest balance first. While this might not be the most financially intelligent approach, it helps maintain motivation towards becoming debt-free. We applied this tactic because we found satisfaction in quickly clearing the smaller debts, boosting our sense of accomplishment.
Choose the method that best accommodates your circumstance and don’t hesitate to modify your strategy midway if it’s no longer serving your purpose. In part three of escaping from debt, we’re providing tips on how to stay inspired!
ACT PROACTIVELY IN DEBT CLEARANCE
Once you’ve settled on your debt clearance strategy, it’s crucial to be proactive in your efforts.
Engage Creditors: Speak with your creditors to see if they can lower your interest rate or reduce your total owed. Would combining your debt be beneficial? If making progress with creditors is difficult, could transferring your debt to another credit card company with a 0% interest rate offer for a while be feasible? Don’t be passive, remember, that’s how you accumulated these debts in the first place. The new you should take proactive measures to minimize your debt.
Trim Expenses: Have you removed all excess costs from your budget? What further compromises can you make to expedite your debt clearance? My spouse and I made several compromises such as downgrading from a one-bedroom apartment to a studio, thus saving $500 a month. We also opted for less expensive utilities and cell phone plans. Could you eliminate services such as cable, Netflix, or gym memberships, or cut down on dining out, entertainment, clothing purchases, etc? Remember, this is not a permanent situation.
Boost Income: If you’ve cut expenses as much as possible, but it’s still not enough, it’s time to increase your income. Could you take on extra work? Sell unneeded household items? Some of the things I did to hasten my debt clearance included babysitting, mystery shopping, taking surveys, and freelancing. Every bit of extra income helped me come closer to being debt-free.
Out of curiosity, which debt clearance strategy did you adopt when trying to clear your debts? Have you discovered methods to save more and make more to expedite your debt clearance?
