This is a guest post by Echo Mayernik.
Are you looking for a plan to become debt-free by 2023? If so, you’re in the right place! Let’s first break down what it means to become debt-free. Between isolating debts and collections and looking at the interest rates of your payments, becoming debt-free requires creating a budget, cutting back on unnecessary expenses, and making intelligent financial decisions. By following these steps, you can take control of your finances and be on your way to a debt-free future.
Create a Budget
Creating a budget is essential when trying to reduce your debt. A budget is an organized plan that helps you track where your money is going and how much you spend in each category. A budget can also help identify areas where you may be overspending or where there are opportunities to save more money.
The most important thing when creating a budget is ensuring it’s realistic and achievable. Consider using apps like Mint or YNAB, which help create adequate budgets quickly. Be completely honest in this process, or you’ll find that your budget is still coming up short. Overspending isn’t something you need to be ashamed of, so long as you’re ready to take control.
Cut Unnecessary Expenses
Cutting unnecessary expenses is another crucial step in reducing your overall debt load. We’re not telling you to cut out everything frivolous, to budget for those special occasion impulse buys. Maybe just one coffee with friends per pay period to celebrate your hard work instead of grabbing that mocha latte every morning on the way to work.
When reviewing your expenses look for any patterns or trends that show spending that could be eliminated or reduced significantly. This could include subscription services such as streaming services, online purchases, or even something as simple as getting rid of cable television and switching to streaming services instead.
Additionally, consider setting aside some of your income into an emergency fund. Then unexpected costs can’t derail your progress toward becoming debt-free by the end of 2023.
Smart Financial Decisions
Making smart financial decisions starts with understanding the difference between good and bad debt. Good debt typically involves borrowing money for investments that can generate income over time, such as real estate investments or business loans. In contrast, lousy debt usually involves loans for depreciating items like cars or furniture purchases.
Additionally, if you have multiple debts consider consolidating them into one loan with lower interest rates which could save you money over time while still helping you reach your goal of becoming debt-free by the end of 2023!
Over half the population is stuck in student debt, and while that should be a good debt, in many cases, the students have graduated and don’t hold a position in that field. Student debt is one of the few expenses you can’t get written off in bankruptcy.
Discuss a Debt Reduction Plan with Your Financial Advisor
With credit monitoring resources, you can get an idea of what debts you hold, create a plan to reduce them quickly, and meet your goal of becoming debt-free by the end of the new year. The most common quick debt reduction methods are the Snowball and Avalanche methods, and we can briefly discuss these differences and how they can help you become debt-free.
The Snowball
The Snowball debt reduction method, is an effective way to tackle your debt and become debt-free. This method involves listing out all your debts from smallest to largest, regardless of the interest rate. You then make minimum payments on all but the smallest debt, which you try to pay off as quickly as possible. Once that’s paid off, you move on to the next smallest debt, and so on. As each debt is paid, you’ll pile that payment amount into the next debt, so the payment gets more significant as you pay each one off.
The Avalanche
With the Avalanche method of debt reduction, you list out all of your debts from highest interest rate to lowest. You then make minimum payments on all but the highest-interest debt, which you try to pay off as quickly as possible. As each debt is paid, you’ll pile that payment amount into the next highest interest rate debt, making it more significant as you pay them off.
The Avalanche method can save you more money in the long run than the Snowball method since it will reduce your total interest costs. However, people tend to find it more motivating to start with the smallest debt first, which is why the Snowball method may be a better option for some people.
The avalanche is a leap of faith, while the Snowball method is a long series of baby steps. The one you choose is up to you and your confidence in the process. Ensure you have your significant needs met before jumping in and dumping funds into debt. Being debt-free is excellent, but not helpful if your family has no food in the kitchen and the lights are off.
Refinance Your Car and Other Long-Term Debts
Try refinancing your car loan if you have one, as it may offer a lower interest rate. You can also request a shorter loan term and pay a slightly higher monthly payment to reduce the length of time you’re paying and the overall cost of your car with interest. Additionally, try refinancing your mortgage to a lower interest rate or take out a home equity loan or line of credit to improve your home and add equity value.
The First Step is the Hardest
Reducing overall debt can seem impossible, but it doesn’t have to be! With careful planning and strategic decision making becoming debt free by 2023 is achievable! Start by creating an organized budget explicitly tailored for yourself, cut out any unnecessary expenses, and make smart financial decisions regarding the types of debts you take on – all these steps combined will help get you on the path towards becoming utterly free from all financial obligations by 2023! You got this!
Getting free from unsecured debt is the first step to achieving your personal financial goals. After this you can focus on investments, being an entrepreneur, and financial freedom.