I know this isn’t the first article you’ve come across about debt, but what sets mine apart is my personal experience. I once found myself nearly $30,000 in debt. Thankfully, I overcame this challenge and emerged stronger, primarily due to the lessons I learned along the way.
Today, I’ll share my journey of paying off my accumulated debt, which forced me to drastically change my lifestyle. I had to be frugal, following a strict payment plan. No more Starbucks, trips, hotel stays, and the like. I put my normal life on hold until I regained my financial balance, and finally felt the taste of freedom after enduring the mental stress from debt pressure and constant messages from creditors.
If you’re trying to figure out how to escape debt, you might be feeling a whirlwind of emotions: excitement, anxiety, hope, and sometimes even despair. Breaking free from the cycle of accumulated debt isn’t easy, but with careful planning, it’s far from impossible.
In this article, I’ll share key strategies that will help you overcome your financial hardship with minimal losses.
Effective Ways to Eliminate Debt and Repay It Quickly (Action Plan)
Here are the most effective steps and methods to eliminate debt accumulation, helping you craft a clear action plan and pay off your debts as quickly as possible, even if you’re on a tight budget.
1. Stop Borrowing Money
The best way to start tackling debt is to stop relying on it for expenses. Continually borrowing doesn’t solve problems; it only deepens them. If you can’t afford something without going into debt, particularly on a credit card that gives a false sense of financial security, don’t buy it.
“The future depends on what we do in the present.” – Mahatma Gandhi
A firm decision to stop borrowing, coupled with essential lifestyle and spending changes, is the best way to start saving and paying off accumulated debts. Also, consider finding unconventional ways to earn extra money. Relying solely on traditional methods won’t cut it. Thankfully, we live in an age of the internet and social media, offering countless opportunities for respectable income, which can potentially grow faster than traditional endeavors.
While I won’t dive deep into this point to stay on topic, I suggest taking a few minutes to explore online platforms that can be lucrative for many.
2. Organize and Prioritize Debts
Take inventory of all your debts and organize them from smallest to largest, then determine the impact of each on your regular lifestyle. Prioritize paying off debts with the highest interest rates, as these can accumulate quickly. Also, prioritize debts owed to family and friends. Delaying these payments can erode their trust in you for the future.
“Organizing is what you do before you do something, so that when you do it, it’s not all mixed up.” – A.A. Milne
Always remember that banks see you as a customer and won’t assist without collateral, but acquaintances might help you in the toughest times without added interests and pressures. Set realistic timelines for repaying each debt; this will assist you in adhering to your new frugality and ease psychological stress.
3. Set a Budget and Stick to It
Trust me! If you don’t commit to a specific budget, you won’t make any progress. Budgeting helps you realistically allocate expenses between essential costs, like living expenses, and luxuries you can live without, like dining out and shopping.
“A budget is telling your money where to go instead of wondering where it went.” – Dave Ramsey
Remember, splurging on luxuries is like a black hole that quickly devours your money, preventing you from thinking about the long-term value of a dollar. Be frugal without overdoing it. Every dollar saved by wisely managing your income positively reflects on your balance and can uplift your spirit burdened by debt.
4. Eliminate Bad Spending Habits
Most people fall into the debt trap because they spend emotionally and can’t control their consumption desires that don’t align with their financial status, especially in a time when appearances seem more important than assets. Nowadays, even senior employees and entrepreneurs can’t satisfy all their material desires, leading to excessive consumption and an unrestrained climb up the luxury ladder.
“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.” – Will Rogers
The advent of social media popularized the “live in the moment” mindset, making many, especially the Gen Z, behave irrationally. Everyone wants to live the perfect moment temporarily, regardless of the cost, and most overlook setting limits on consumption habits.
To pay off your debts, you must adopt a strict frugality policy focusing only on priorities; this will help you save and achieve some financial security.
5. Maintain an Emergency Fund
This step might seem counterintuitive when you’re drowning in debt, but it’s crucial. Saving, even if it’s a small amount, prevents you from having to take on new debt when an unforeseen expense arises. The goal is to eradicate the habit of borrowing entirely; hence, any new liabilities will be counterproductive.
“An ounce of prevention is worth a pound of cure.” – Benjamin Franklin
The emergency fund will support you during crises, covering urgent expenses like medical bills or unavoidable bills such as rent. Our article on the benefits of saving will shed light on the significance of this fund and its positive impact on your morale. Having a side fund provides a comfort margin, even if it’s limited.
6. Get a Second Job
If you’re an employee or have a low income, merely focusing on saving money won’t help you overcome your debt problem; securing new sources of income is essential. Getting a second job can boost your monthly income, especially if you venture into a field you’re experienced in. You could also consider starting your own business.
“Opportunity is missed by most people because it is dressed in overalls and looks like work.” – Thomas Edison
Our previous guide on successful and profitable home-based businesses might provide you with ideas that align with your professional expertise and financial circumstances. For those skilled in tech or engineering fields, you can offer services on freelance platforms like Upwork and Freelancer. These reputable sites offer excellent job opportunities that often surpass regular monthly salaries.
7. Develop Financial Literacy
If you’re burdened with debt, you’re not alone. But the solution isn’t just about paying off debts; it’s about developing sound financial literacy and consumption habits. While everyone wants to earn more and diversify income sources, few genuinely know how to manage and grow their wealth. This management issue mainly stems from upbringing circumstances and is often omitted from educational curriculums for children and teenagers.
“An investment in knowledge pays the best interest.” – Benjamin Franklin
Those with limited means see money as an end in itself, spending it impulsively, unlike the affluent who view it as a means to maintain a good standard of living and ensure comfort.
Personally, I recommend reading economics books or at least listening to self-improvement podcasts, which can teach new skills and help you learn from others’ experiences. You need to refine your spending habits when it comes to budgeting or assets, or else you’ll spend the rest of your days without financial stability, constantly at the mercy of banks.
8. Seek Financial Expertise
This option isn’t suitable for everyone due to the high cost of financial consultations. However, it’s ideal for business leaders and investors facing setbacks in their projects and accumulating bank debts. Hiring a financial advisor can help you craft a meticulous plan for professionally managing your investment portfolio and confronting financial downturns cost-effectively.
“It’s not about making the right choice. It’s about making a choice and making it right.” – J.R. Rim
Financial expertise will provide solutions for renegotiating bank interest rates, reducing bills, and preparing a struggling project file to exploit any potential tax benefits.
9. Tracking and Monitoring
Settling accumulated debts is a complex, exhausting process that intertwines the financial and psychological. It requires a significant time commitment and a resilient personality, as debts can mentally burden even the strongest individuals.
“Celebrate the small wins for they are the foundation of the bigger successes.” – Anonymous
When devising your strategy for debt elimination, motivation, charisma, and focus are crucial to avoid succumbing to despair. For these reasons, I strongly advise you to keep detailed notes and maintain a spreadsheet or visual chart specifying your debts with a timeline to monitor progress.
Remember! No return to normalcy until all debts are paid, and true comfort comes only after wealth accumulation and asset diversification. Staying committed to this will prevent irrational overspending, which would likely plunge you back into the debt trap.
10. Reward Yourself after Paying Off Each Debt
Practicing frugality and adjusting your lifestyle can initially dampen your spirits. However, sacrifices are necessary to achieve your desired goals.
“Celebrate the small wins for they are the foundation of the bigger successes.” – Anass Habrah
You shouldn’t succumb to the emergency state you’ll experience as you try to save money to pay off debts, nor the mental exhaustion that accompanies it. Therefore, it’s essential to take intermittent breaks to enjoy life. For instance, after paying off a listed debt, there’s no harm in celebrating by purchasing a luxury item or enjoying a family dinner at a restaurant. These periodic rewards will rejuvenate and relax you, providing the necessary motivation to persist in your new lifestyle.
It’s crucial to remember that falling into the debt trap isn’t about how much money you earn or the assets you possess. Often, debts plague middle-income and wealthy individuals more than the impoverished.
High-income individuals can remain submerged in debt throughout their lives, as they’re more prone to falling into the excessive consumption trap promoted by governments and banking institutions. Most low-income individuals live comfortably, far from the perils of debt, mainly because they’re marginalized and lack the guarantees that banks require.