8 Simple Ways To Reduce Your Debt
We all want to buy expensive things, go on foreign trips, and give a lavish lifestyle to our families. However, sometimes, most of us fall for the debt trap in the process due to the lack of calculation and financial planning. They say it’s easier to go into debt and on the contrary, challenging to get out of it. As a result, most people go through stress which affects their mental and physical health. But, don’t worry, it’s possible to reduce your debts on your own, without sacrificing your lifestyle. The following are a few useful ways to reduce debt and get your peace of mind back.
List Your Debt By Interest Rate
First things first, write down all your debts, for example, home loan, car loan, education loan, credit card, etc. in ascending or descending order as per their interest rate. Allocate the maximum amount to the highest interest rate debt and maintain other debts by paying minimum EMIs. The faster you get rid of high-interest rate loan, the better it is for your financial health.
Pay More Than The Minimum Payment
Whether it’s a card debt, personal loans, or student loan, one of the best ways to pay your debts sooner is to make more than the minimum monthly payment. This will not only help you save on any additional interest throughout the life of your loan, but will also reduce your payoff duration. Also, don’t forget to double-check the prepayment penalties before you get started.
Sell Everything You Don’t Need
If you’re looking for a way to pay off your high-interest loans quickly, consider selling off things that you haven’t used for a year. Because there are chances, you may never use them. Nowadays, it’s not that difficult to sell things thanks to multiple online platforms. Whatever money you will make by selling unnecessary items, use it for paying your EMIs straight away.
Pick Up A Side Hustle
No doubt attacking your debts with a snowball method will help you reduce your debt. But another way to decrease your debt would be to earn more money by picking up a side hustle. Everyone has a talent or skill that they can monetize – if you don’t have one, there are many that you can learn online.
Picking up new skills is a great way to enhance and earn extra money – we highly recommend it. Read more here.
Pay Loans With Second/Extra Income
When husband and wife both are earning, one person’s salary can be used for regular expenses and investment and other one’s salary can be used entirely for paying off debts. In another case, where only one person is earning, he or she can take up part-time or freelance jobs like writing blogs or reviews, catering, becoming a tour guide for weekends, etc. to earn some extra bucks to reduce his or her debt.
Track Your Spending And Identify Areas To Possibly Cut Back
Many people can save a lot of money when they consistently track their expenditure. That is why it is essential to keep track of every small and big expense that you have in a month. It is necessary to be honest in this exercise because it will not work otherwise.
Once you know your spending habits, you can identify areas where you can reduce your spending – that money can be used to pay down your debts.
If you’re in debt and it’s continually increasing, then you need to evaluate your spending habits. Learn to differentiate between needs and wants. Spend your money only on necessary things. This is the best time to get rid of practices that are expensive and impact your health, too, like smoking or drinking. If you are spending too much on restaurant lunches during work hours, or fast food — the best plan of attack is to look for a less expensive alternative.
Create An Emergency Fund
Whether you have debt or not, it’s always good to have an emergency fund. This way, you don’t need to take a loan when an emergency occurs. You can put your extra money in liquid investment as an emergency fund. It won’t give you high interest, but there’s no harm in it too as you can get the cash whenever you want. Learn how much to invest with goal calculator.
Alternatively, you can start an emergency fund here.
No matter what type of debt you’re in, it’s important to know there is a way out. These simple ways can help you reduce your debt as well as your stress. It may not happen overnight, but a debt-free future could be yours if you go according to the plan. And the sooner you become debt-free, the quicker you can start living the life you want.