How to get out of debt
We’ve rounded up the best tips from our Fairstone Lending Specialists on how to eliminate debt (for good):
Find ways to stay accountable & motivated: read success stories, take occasional breaks, reward yourself etc.
As with any goal, it’s important to find ways to stay accountable. It can be especially difficult to stay motivated during the first few months you’re paying off debt, since a large portion of your payment is probably going towards interest. The good news is the more debt you pay off, the less interest you’ll owe on each payment.
Reading other people’s success stories can help motivate you when you’re feeling discouraged, and help you visualize your end goal. Still feeling discouraged? Try taking a short break from debt repayment two or three times a year. Scale back on how much you’re allocating towards debt repayment and feel free to use the extra money for a small reward. Perhaps grab a fancy coffee, take a trip to the beach or buy a new pair of shoes. Taking a breather will give you a taste of what your budget will feel like once your debt is cleared.
Tell a trusted friend or family member about your financial goals
Tell someone out loud that you want to pay off your debt. It might be a scary thought, but sharing your financial goal with someone you trust can help keep you on track. When deciding who you want to tell, consider the people you spend the most time with. Your friends will be more likely to think about doing cost-friendly activities if they know you’re focused on paying off debt.
Don’t put yourself in a position where you’ll be tempted to spend money
What caused you to get into debt in the first place? Asking yourself this question will help you avoid situations that may tempt you to spend more money than you have room for in your new budget. Here are some actions you can take to avoid temptations:
- Stash away credit cards in places that are difficult to access, or have a friend or family member hold on to them in the meantime
- Avoid shopping malls unless you need something – don’t visit the mall just because you’re bored
- Carry snacks and meals with you so you’re not tempted to buy pricey restaurant food
- Wait 24-48 hours before purchasing an item over $100
Scale back on savings until you're debt-free
A lot of people are hesitant to cut back on their savings, even if it’s to help pay down debt. While savings are a priority, freeing yourself from debt can actually help you save money in the long run. You don’t have to stop saving money altogether, but try to reprioritize where your money goes.
Consider reducing the money you’re putting toward savings by 10-15%, and use that extra bit towards debt repayment instead. Then as your debt goes down, slowly decrease the amount you allocate towards debt and increase the amount you allocate towards savings. The more debt you pay off, the farther your payments will go towards the principal and not just interest. So, each time you reach a debt repayment milestone, increase the amount you’re contributing to your savings by 2-3%.
Create an additional income stream
You can only cut back your spending by so much. If debt repayment isn’t fitting in your budget, it may be time to find ways to earn extra money. Since you’re used to budgeting with your current income, put any extra money you earn solely towards debt repayment. Picking up an extra job (even temporarily) means you’ll be busier. So, not only will you be earning extra income but you also won’t have as much time to spend money. It’s a win-win!
Simplify your debt repayment schedule
If you’re struggling to make payments on multiple bills, a debt consolidation loan is the best way to manage debt, and ultimately become debt-free. A debt consolidation loan can help you pay off debt faster, helping you save money in interest. Own your home? Try securing your debt consolidation loan against your home to secure a lower interest rate – you’ll likely save money in interest charges over the long run.
Credit card debt? Take a break from credit card transactions.
Put your credit card away for a few months and only make purchases with your debit card. Or, even better, opt for cash. Paying with cash will help you keep better track of your spending since you’ll physically see how much money you’re handing over for each purchase.
Tip: Don’t cancel your credit card (unless you really can’t trust yourself to not use it). Demonstrating that you can use your credit card responsibly will help you rebuild your credit.
Use cashback rewards to pay down your balance
Put your rewards to good use – use any cashback you’ve accumulated to help pay down your balance. Most credit cards will allow you to apply the rewards directly towards the balance of your card. It may be tempting to deposit awards into your bank account for some extra money, but every little bit you pay towards your balance will help you get out of debt faster.
Be careful – if you miss credit card payments, you might lose rewards.
Once you’re debt-free, allocate your debt repayment budget towards an emergency fund
Always using your credit card for emergencies? Even though it may seem like a good idea at the time, it can quickly become overwhelming. You’ll never break the debt cycle unless you have an alternate plan to pay for emergency expenses. After your debt is paid off, continue allocating the money you were spending on debt repayment into an emergency fund. You’re already used to living on a tighter budget, so this will be an easy to way build up your savings and prepare for any future emergencies.
Change your spending habits (stop the debt cycle for good)
Paying off debt is an important step for your financial future. However, you’ll never have full financial freedom unless you address the root of your debt problem. It’s important to change your spending habits if you want to stay out of debt. Educate yourself about money management habits and the importance of budgeting so you don’t spend more than you can afford to pay back.
Paying off debt won’t happen overnight. But if you’re committed to your goal, you may be debt-free sooner than you think. It might be discouraging at times, but having control over your finances will give you more freedom and flexibility in the future. Now, that’s something that should motivate you to reach your financial goals!
Interested in a loan? Try our free loan quote! In just a few minutes, we’ll tell you how much money you could qualify for and what your payments might be. No obligation and no impact to your credit score.