If you are looking for real ways to manage your debt and personal finances, then this post is for you.
Becoming debt-free is totally rewarding because debts are typically the hurdles in achieving financial freedom and independence.
If this is your priority now, today is the perfect time to start.
Welcome to today’s topic “7 Tips To Become Debt Free And Achieve Financial Freedom”
Let’s get started!
Post Updated Last: June 17, 2020
7 Tips To Become Debt Free – Achieve Financial Freedom Fast
Are Debts Normal?
Whichever state or country you are living in, everyone has debts. In fact, in the UK, an average UK debt is at £8,000 per person – not even including the mortgage loan.
Debts, different kinds of loans, credit cards, etc. are offered everywhere, right?
It seems like people who don’t know how to properly manage their personal finances are looking at them as if they really need them. How true is that? Let’s talk more about that later.
Acquiring debt is very easy, but getting rid of it, is the toughest one, because of the accumulating interest year after year.
Unfortunately, since almost everybody is acquiring debts, loans, or credit cards, the trends of debt races are becoming normal in our society.
The result – the poor become poorer.
The Good And The Bad Debts
Now, remember that there is nothing wrong with acquiring debts or loans as long as you are using them to your advantage.
How can a debt become good or bad then?
Good debts are something you acquire in order to build your lifestyle up while the bad debts are exactly the opposite.
Let’s take some examples of good debts.
For instance, you acquire a student loan to finance your studies – this is an example of investment into yourself to acquire a competence that will benefit you with a better job or better source of income later on.
Another example is acquiring a property through mortgage loan – this can also become your investment if you know how to do it right.
Well, what are the bad debts?
If you are an owner of an establishment or business, bad debts are the debts of your bad customers/clients, who are no longer able to pay you back.
When we talk about bad debts in personal finances, these are the debts that give you a huge burden to pay back and in the worst case, the debts that you are not able to repay.
If you have any debts that you really and eagerly want to get rid of, then do not delay to take actions.
Below is my simplified list of 7 tips to becoming debt-free as soon as possible. Number 3 is the most recommended to those who can’t really figure out how to make this work.
1. Check Your Personal Finances
By this, I mean that you must have a comprehensive overview of all your income and expenses. It’s also called the household cash flow.
Make simple lists of the money that is coming in and out of your bank account.
From here you can see if you have healthy personal finances with your current lifestyle.
If you spend more than you earn, then you know you need to do something immediately.
If you have not made your personal financial statements yet or you do not know how to make one, then there are a lot of free software and apps you can download from the internet.
Normally, the banks have also their own respective budget programs free to download from their websites, so you might want to check it out as well.
Today it is easier to make a financial statement because most of the monetary transactions we make every day are reflected on our accounts electronically.
2. Make A Repayment Plan For Your Debts
After checking your personal finances and made a personal financial statement, make a list of your debt indicating the principal, interest, length of the payment period, balances, and as well as the monthly dues.
Make sure you have the total amount of the debt balances.
Prioritize paying the one with the highest interest and pay more than the minimum due as much as possible.
And then pay the next one on the list with the highest interest including the amount of money you used to pay for the number 1 debt on your list.
And the process just goes on and on, until you realize you are totally debt free so fast.
How long will it take to be debt-free?
It depends on how much you are indebted with and how much you are willing to put as extra money for the repayment of your debt.
Some people can do it in just 1 year and some people need around 3-5 years before they can become debt-free.
Well if you then realize that you are in serious debt, make a proposed budget which will show how much you can pay each month and go to the next tip.
Image credit: Stevepb, Pixabay
3. Get An Appointment With Your Bank Advisor
As an accountant and former bank employee – I can tell that every bank account holder as a respective bank advisor or contact person. So make sure you check your bank account and see who your adviser is.
* Contact your bank adviser and arrange a personal or virtual meeting.
* Present your financial status by providing your financial statements.
* Present your Debt Repayment Plan, which will show how much you can pay each month instead of the total amount of money you are currently paying every month.
* You might be required to send these papers ahead right after you booked an appointment on the phone. So make sure you are prepared – this will also give your adviser an impression of sincerity with your plan for improving your personal finances.
Now, this is what most will happen: Your advisor will evaluate your financial status by looking at those papers you submitted. He/she will then make her own proposal on how you can improve your personal finances.
This can possibly be based on your possibility of refinancing your mortgage loan (if you have one with them), so you can get rid of your debt.
If you have other assets showing on your financial statements – these will also be included in his/her evaluation.
The bank can possibly also grant you a bank account credit if you are a good customer with them regardless of your debt.
These bank credits can eventually pay off all your debts, so you will repay them with a relatively cheaper interest rate rather than if you consolidate all your credit cards and loans in one credit card company.
If this tip fails, then you still have another option. Go to the next tip.
4. Consolidate Your Credit Cards Balances
If number 2 and 3 fail, then this one is also effective.
Contact one of your credit card companies or a totally new credit card company and present your Repayment Plan together with the proposed monthly payment you are willing and capable of – to pay off the consolidated debt.
This will enable you to pay a better interest rate and a better or lower monthly payment.
The disadvantage of this is that you may have to pay your debt in a longer period of time.
Nevertheless, remember to choose the minimum payment but pay more than the minimum due, when you have extra money so you can accelerate your payment period.
5. Get Rid Of All Your Unnecessary Stuff
Another way of getting rid of your debt is to get rid of the things that you do not need anymore. Many of us tend to forget a lot of useful stuff in our basement or garage.
We don’t use these things in the basement for months or years because we really do not need them. You can, for example, hold a garage sale in your backyard or sell them online.
A lot of people are actually earning good cash by selling used stuff like mobile phones, old furniture, old shoes, old clothes, unused perfumes, old presents that are not even opened. You name it.
Maybe you will get surprised how much cash you can generate and to pay off your debt and become debt-free by doing this.
6. Earn More
There are a lot of ways of earning extra cash today. Aside from the number 5 tips, you can also offer some simple jobs during your days off or free time.
For example Cleaning, washing, and ironing jobs, simple gardening services, window cleaning, babysitting, part-time caregiving at your local nursing home, or even pet sitting.
And if you have some talents like playing musical instruments, then you can offer a tutorial lesson for that. You can also offer a tutorial with a specific school subject – like Mathematics, Science, English, Spanish, Chinese, or anything you are good at.
I know some people who tried this for some time and eventually fell in love with working as a freelancer – because they realized that the earning potential could be unlimited when they discover that they can actually help people and earn money at the same time.
I also know some people who made a business out of it after they got the experience – like establishing a cleaning company, an English language school for foreign students, or a music school/store.
The opportunities for earning money are actually unlimited. So go and get it. It is your life, it is your choice.
Check my list of 15 proven ways to earn extra money online from home.
7. Financial Comfort System
When you get rid of all your bad debts or the expensive debts that have given you a burden for years, then this is the time for you to build a financial comfort system.
What is Financial Comfort System? I personally call it a comfort system because this is where you build your peace of mind and start your journey to financial freedom.
The Emergency Fund
First, you need to create an emergency fund at least equivalent to your 6 months current salary – this will save you in case of an emergency. This is very important for attaining peace of mind.
Make sure you have good health insurance and life insurance (you and your family) – this will also protect you and your family from any financial downstream, in case of sudden death or sudden disabilities.
There are different types of insurance that you need to consider according to your preferences and ownership – like house or vehicle insurance, travel insurance, etc.
Another important thing, for now, is that, you need to start “saving” money so you can start to invest as soon as you become equipped with all the necessary knowledge within investing and become financially free by making your money work for you.
Lastly, always remember that financial freedom is a choice. Make that choice today and start your journey towards it and to the lifestyle, you dream of for you and for your family.
Image Credit: Oliver Sjöström, Pexels
This is the end of the today’s financial tips. I hope you enjoyed it. If you need any advice or if you have any questions, feel free to comment below and I will be happy to help you out to the best that I can.
Do you have additional tips? let me know by simply commenting below.
What an informative article. I do have a question about step number 2. You recommend paying off the debt with the highest interest rate first. But, what if that bill is lots higher than your others, and it will take a long time to pay it off. Would it also be a good plan to pay off the change card with the smallest amount first? That way you can get a sense of accomplishment much faster, and then move on to the one with the higher amount owed.
Thank you for your question. Paying the smallest amount first in one way of doing it and that’s what people normally do.
However, if you prioritize the one with highest interest rate, yes especially if the payment period is longer than the other ones, then you can save a lot of money with the interest expenses. Noticed that i noted to pay higher than the minimum monthly payment as much as possible.
Terms 5 years
Monthly dues 118.95 (interest: $62.5 and the principal in only $56.45)
If you pay this debt in 5 years – you will going to pay around 2,137.00 for the interest alone.
If you will going to look at the amortization table, logically your principal contribution goes up and the interest goes down correspondingly everytime you pay, although you pay the same amount every month.
And when you pay higher than the minimum monthly due, for example $50 – You could payoff this debt 22months earlier and save $854.65 just for interest expenses alone. Noticed that these calculations do not include any administration fee and loan insurance, which are also normally included when obtaining a loan – to be paid monthly as well. Administration fee and insurance fee are normally calculated according the principal amount – the higher the principal, the higher the fees are too.
As mentioned, then do the same to the next debt on your list, pay the minimum monthly dues plus the same amount money (or maybe higher), that you used to pay for the number 1 debt. This way you could save a lot of interest expenses and become debt-free fast.
I hope it will help. If dont you have any financial calculator yet, you can download a free app on your smartphone.
Best regards and God bless.