Debt happens to be the reality for many Americans. According to Experian.com, the average consumer debt was about $90,000 in 2018! Compare this to the average income of $50,000! It’s almost double the average income! To break this down a little further, the average American individual held $6,194 of credit card debt and $19,231 of auto loans in 2019. How do you compare to the average in this case? Are you slowly building debt or are you paying it down? Regardless of how much you owe, let’s talk about how you can quickly and effectively pay off your debt to become debt free!!
Track your spending
How are you going to pay off debt quickly without knowing where your money goes? There are plenty of ways to track your spending. One method people often use is an excel spread sheet. Every month add up ALL of your expenses and subtract them from your net income (e.g., your pay checks). You will easily see whether your bank account is positive or negative by the end of the month. This method is fun because you can quickly look back at previous months to compare how your spending decreases over time. I personally find this very motivating because you can visually see your improvement over time.
Another way to reduce spending is to use an app! Budgeting apps like Mint or Personal Capital are pretty easy to use and your bank may have an app with budgeting tools as well! Once you have your app of choice, go ahead and link your bank, credit card, and loan accounts to the app. Overtime, the apps will learn your spending habits and will generate pie charts and graphs that show you how much money goes to each spending category every month. For example, maybe you’ll learn that 50% of your spending goes to your rent or groceries every month. Then you can take steps to brainstorm how to reduce your bill.
Try tracking your spending for a couple months (or longer!), and you’ll quickly find spending patterns that reveal where you can cut expenses and how you can apply the savings to your loans. I’ve also noticed that just by tracking expenses, people often naturally reduce their spending. This tip is very crucial to paying down debt quickly! I was shocked by my spending habits when I finally started tracking.
Live below your means
Now that you have determined how much money you spend every month, take steps to make sure you spend less than you earn. This may mean cutting back on your grocery bill or changing your living situation, but decreasing your expenses increases the amount of money you can put toward your loans. Check out my previous article if you want to learn how to save hundreds, perhaps thousands of dollars with only a couple of hours of your time.
Additionally, think of ways to challenge yourself to save money. If you notice you go to the grocery store too often, consider a spending freeze. Make the decision not to go to the store on Mondays and Wednesdays (or maybe an entire week) and apply that savings to your loans.
Use the debt snowball method
We can get fancy and talk about paying off the highest interest rate loans first and while it is not wrong to start with highest interest rate loan, Dave Ramsey is totally right about the excitement that comes with paying off debt and seeing a little notification that says, “Congratulations! Your balance is $0!”
So, take advantage of your psychology and write down all of your debts from smallest to largest. Pay off the smallest debts off first and cross them off the list. Each time you cross something off, you congratulate yourself! Then apply that extra money to the next debt on your list. Keep doing this until everything is paid off.
Negotiate the interest rates on your credit cards
It does not hurt to call your credit card companies to ask them to lower your interest rates. You might be able to cut your interest rate down from 30% to 15%! If that does not work, you can also try consolidating your credit card debt. This method can drastically cut down your interest rate, but often requires a good credit card score. Again, it does not hurt to ask!
Stop eating out and practice meal prepping
I know cooking is really hard for busy parents or working individuals but take a look at your monthly spending. How much do you spend eating at restaurants every month? Can you cut down on this expense? Try preparing your meals for a few days in advance to save money on your lunch bill. Also, consider hosting potlucks or inviting people to your home for drinks instead of visiting a restaurant or bar (post-COVID, of course). You may end up saving hundreds or thousands of dollars every year by reducing this expense. Check out 5 Dollar Meal Plan if you need meal prep ideas.
Use cash instead of a debit or credit card
Cards mask the amount of money we exchange every day. It is so easy to swipe a card and worry about the dollar amount in your bank account later. If you have trouble budgeting, consider using cash. A common method is to put a fixed amount of cash into envelopes at the beginning of every month for things like restaurants, groceries and gas. Then, pay attention to how much you have in your envelope as the month goes on. If make that money last the whole month, congratulations!!! You have successfully stuck to your budget!
Find a side gig
There is only so much frugal-ing you can do. At some point, you will reach a bottom limit and you won’t be able to cut back on your expenses any more. This is the time to consider a side gig. Side gigs are work, but they are worth the effort while you’re on the path to a debt-free lifestyle. You can consider starting a blog (I was inspired by the post from Finnsavvypanda), or signing up with a ride-sharing app (think Uber or Lyft). You can also learn how to build and sell website templates (search YouTube, there are so many tutorials). In terms of increasing income, the sky is the limit, but it does take time and effort.
Changing your spending habits can be very hard. I understand. Be content with where you are in life and find motivation in the fact that you will be debt free very soon!! I truly believe it!!! I hope these tips help you reduce your loans quickly and effectively! If you need any help, please feel free to reach out to me.
Cheers!
FI Addict
