Working towards a debt-free lifestyle means working towards one thing: FREEDOM. In some ways, paying off debt may feel like some kind of indentured servitude. But in reality, carrying a debt is basically the modern-day version of just that.
With a little creativity, knowledge, and hard work, a debt-free lifestyle can be yours for the taking! Read on for some tips on how to accomplish a life free from the burden of debt.
1.Figure out your net income
How much money do you actually take home? You’ll need to know this figure in order to address your debt.
Not your hourly wage, not your yearly wage, but the physical amount you take home after taxes. Any amount other than this will be counting money you don’t have, and therefore useless in factoring out what you can actually spend.
Your “gross income” on your paycheck is the total amount of everything you’ve earned, but that doesn’t mean you actually take it home. Your taxes, Social Security and Medicare contributions, and other pre-tax deductions (such as healthcare, retirement, or even union dues) are taken from your gross income. Your “net income” is the number that actually applies to your take-home pay, and the only number that actually matters in determining where your money should go.
2. Add up the total debt you owe
You cant see the big picture until you calculate all the moving parts. Get to opening your statements and calculating your total debt, fool!
You can’t attack a problem if you can’t see the entire picture. Knowledge is power, and the more you know, the more accurately you can attack it. Gather up that pile of mail you’ve been ignoring for weeks, and weed out all the bills you need to address. Log into your credit card websites, and write down the total amount you owe, including the annual percentage rate (APR). Look up your student loans, personal loans, and any other type of loan you owe, and write the total amount owed plus the interest rate. Don’t forget to include debts that are ongoing every month, like rent, groceries, gas, monthly memberships. You should also write down the due date of each bill.
3. Make a plan of attack
You might think ignorance is bliss, but ignoring your debt is like floating in a pool of sharks. Attack your debt before it attacks you!
Once you have written down your bills, you can look at the entire picture of your debt objectively, and plan your attack accordingly. A debt-free lifestyle can only come when you make a plan and stick to it. There are a number of different methods you can use from just making a simple budget, to the snowballing method. It may help to write all of your monthly bills, as well as paychecks, on a calendar, so you can visually see what is due from week to week, and which paycheck your money will have to come out of.
4. Trim the Fat
Part of a debt-free lifestyle means trimming the fat from your expenses.
What can you cut out of your budget? Are there some frivolous items you can live without?
Expenses that get auto-debited out of your account can be convenient for making sure your bills get paid on time, but it can also be an out of sight, out of mind type of situation. If you don’t see it or think about it, you might not really use it or need it. Take an objective look at your monthly expenses, and ask yourself what you could live without. Removing the extra clutter and expense may actually help you to feel less burdened, and it can free up some funds to attack your more pressing debt with.
5. Pay attention to details
Checking your balance often can help you to manage and stay on top of debt.
Part of living a successful debt-free lifestyle means paying attention. Open your bank statements when they arrive, check your credit report for free from the three credit bureaus once per year, monitor bank accounts on a regular interval. Afterall, the devil is in the details.
6. Save a little money from each paycheck
Many personal finance articles advocate for “paying yourself first” which means designating a portion of your income towards your savings or retirement before anything else. What is the benefit of doing this? First of all, its easier to accomplish saving a certain dollar amount if this money is routed into a savings or other account before you can use it. You avoid the temptation of spending what you shouldn’t be, and ensure you have money in case of an emergency.
Saving a portion of money every month, no matter how small, is the path towards breaking the paycheck-to-paycheck lifestyle. It may be hard to conceive of incorporating more restrictive habits or living on less, but doing this can really bring some big benefits in the end. It’s hard for many people to get excited about saving money or paying debt, but living below your means forces you to get creative. And in the end, hard work always pays off. What could be better than being completely debt-free, deciding where you want your money to go each month, and never having to hear from a debt collector again? The freedom you’ll feel when you’re in control of your finances is priceless.
Living a debt-free lifestyle will have you clicking your heels too!
What are some of your favorite tips and tricks for saving money and paying off debt? Let us know on our Facebook or Instagram page, and tag us with #DebtFreeEC.
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