4 Steps to Becoming Debt-free
If you’re constantly fretting over debt and you’re worried about your future, relax, the good news is it’s not too late to start taking control of your financial situation.
In a world that rewards instant gratification and relentless consumerism, it’s easy to be lulled into prioritising short-term spending over long-term saving. As they say, go big or go broke, because…YOLO, right? But a cavalier attitude to personal finance is a slippery slope. Many who end up in the trappings of debt share one thing in common: overspending. If you’re constantly fretting over debt and you’re worried about your future, relax, the good news is it’s not too late to start taking control of your financial situation.
#1: Start by understanding the problem
Find out precisely how much you owe, your current balance owed, what type of loans you have and how much interest you are paying for it. It might feel daunting to get started, but understanding the magnitude of your debt allows you to plan a better exit strategy.
#2: Pay your debts as quickly as you can
Sort your outstanding debt from highest to lowest interest rate. The higher the loan ranks on this list, the higher is its priority to be paid off. Where possible, increase the payment amount for loans with high interest rates. Don’t take on a thirty-year housing loan just because it has a lower monthly rate and you can have plenty of time to pay it off. Paying debt early will considerably reduce the crushing burden of interest you’ll pay over time.
#3: Start living within your means
Living within your means is not about cutting corners but being able to differentiate between your needs and wants. Start by identifying several of your biggest monthly expenses and figure out how it can be reduced. This requires a willingness on your part to make drastic changes, which could range from quitting bad habits to downsizing your home to postposing that vacation you were going to blow your spare money with.
#4: Avoid bad loans
Abstain from taking loans that exceed the usual rates by 20 percent or more. When taking on a new loan, read the loan terms properly. Red flags include unreasonable late payment penalties, prepayment penalties or loan costs. If you come across a bad loan, walk away. It’s just simply not worth it.
Bonus tip: (If you’re a student or a parent) learn about financial aid available to help offset education costs
Most higher education institutions offer financial aid packages in the form of grants, scholarships, bursaries, and loans, so it’s worthwhile to contact the school’s financial aid office before making your decision. You may also find private sources of financial aid, such as through community associations, businesses and other organisations that support higher education. Bear in mind that for most needs-based financial aid, eligibility largely depends on your family’s per capita income.
Putting these measures into practice requires a tremendous amount of courage and self-discipline. That live-your-fullest-life bravado doesn’t have to be at the expense of your financial future. Apply some fiscal self-control and a clear plan, and you can live your best life, debt-free. Because, you know, YOLO…