Consumer debt slowed down for many people during the pandemic, but for most of us, we still have debt we need to pay down. In fact, now that it appears the economy is recovering from the pandemic, it has been reported that household debt climbed to $14.64 trillion, due to a jump in mortgages and car loans.
It costs a lot of money to carry debt. Let’s look at an example.
If you carry a $2,000 balance on your credit card at 20% interest you are paying $33 per month in interest charges to carry that balance. Over the year that amounts to over $400, you are paying to carry that $2,000 of debt.
The average American is carrying $6,200 on their credit card. If the credit card interest rate is at 22% then it is costing $114 per month in interest payments and over $1,370 per year.
Most credit cards are charging compound interest which means your interest costs will increase over time. If you carry $6,200 on your credit card for one year you are paying more than $1,600 when it is compounded.
See how much more interest you are paying when your credit card charges compound interest? That’s about $300 more per year.
If this scares you, I’m sorry to say but I’m glad. Because you can turn this fear into action. You need to stop giving your money away to these credit card companies and start building your own wealth. Get out of debt and start saving money.
When you get out of debt and know how to stay out of debt, that will bring you financial freedom.
Are you ready to start paying off your credit card debt? Sign up for the Debt Repayment Calculator Mini-Course to create your debt repayment plan. This course will help you list out all your debt and create a debt repayment plan that works for you. It’s simple. You enter all your debt and let the workbook calculate the rest.
How to get out of debt
When you have hit your limit and you know it’s time to get serious and get yourself out of debt, you need to download a copy of the Debt Repayment Calculator. This mini-course was designed by me to give you a quick planning tool that will allow you to list all of your debt and the spreadsheet will automatically generate your debt repayment plan.
It takes a lot of courage to add up all the debt that you have. If you are like most of us, we love avoidance. We love to sweep the bad news under the rug and live in denial.
However, avoidance costs us money. The longer you avoid paying off that debt, the more it will cost you in interest fees. Think of interest fees as penalty charges. This is your penalty fee for carrying debt.
If you have credit card debt, try negotiating a cheaper interest rate with your bank while you work at paying off that debt. Some banks are very receptive to working with you to get that debt paid down. And that will save you money on interest fees.
Knowing how to get out of debt fast is essential. The first step you need to take is to decide that it’s time to commit to paying off your debt. People get into debt for various reasons. Some because they overspend, others due to an unexpected emergency. Whatever your reason is for getting into debt, it’s time to start paying it off.
The second step is to stop overspending and buying items you don’t need or paying for convenience. By paying for convenience I mean stop ordering food when you could be making it for a fraction of the price at home. Shop smarter which means to price compare, stock up on items when on sale and plan your meals around sales.
Use less energy like heating and air conditioning. Drive less and walk more. Make a concerted effort to save money instead of mindless spending. Don’t buy things you don’t need and sell stuff that you purchased and never use. Read here for How To Save Money Fast: Try These 25 Tips to get ideas on how to save money.
Now with all that money that you saved you need to use that money and apply it towards your debt. The goal needs to be to pay down that debt as quickly as possible. The longer you carry that debt, the more money you will be paying on interest expenses.
The goal needs to be to pay off the debt as quickly as possible. That is the best way to get out of debt fast, just own it and pay it down.
The next goal is knowing how to stay out of debt.
Debt repayment calculator
A debt repayment calculator will help you plan out your debt repayment journey. A debt repayment calculator will calculate all the debt that you owe and show you when all your debt will be paid off by meeting a prescribed monthly payment schedule.
Sign up for the Debt Repayment Calculator Mini-Course to get on your debt repayment journey now.
Debt calculators will give you a choice between two methods of debt repayment. There is the debt snowball repayment method and the debt avalanche method. Regardless of the method that you choose, just knowing how to stay out of debt will be the important outcome.
Debt snowball repayment method
The debt snowball method is when you are motivated by paying off the lowest debt balances first. You start by listing all your debt from smallest balance to largest balance and paying the balance on the lower sized debt first. Once that lower debt balance is paid off you move to the next one on your list.
The debt snowball method is effective for those who are motivated by seeing their debt disappear by the debtor. The idea is this is motivating and creates momentum to keep going with the debt repayment plan.
Debt avalanche repayment method
The debt avalanche method is arranging your debt by highest interest rate first, then going through and paying off the highest interest-bearing debt first. This is a cost-effective approach as the higher interest-rated debt costs more to carry, so the faster you pay off the more expensive debt, the more money you save.
This debt avalanche method is effective for those who are motivated by paying off the most expensive debt first.
The reality is that the snowball method and the debt avalanche method are both equally effective methods of paying off debt. Which is the better method? The answer is entirely about what motivates you.
It doesn’t matter which method you are using as long as you are paying off your debt. The next step is to know how to stay out of debt.
Knowing how to stay out of debt is a vital part of your financial plan. Pay attention.
How to stay out of debt
Paying off debt is very much like dieting. Once you hit your goal weight in dieting, the harder work is in the maintenance program. The same can be said for staying out of debt. Once you reach your goal of being debt-free, it’s easier to let slip-ups happen. But ideally, you would want to stay out of debt. Knowing how to stay out of debt is key.
If you are an emotional spender then you need to work on managing those emotions and what triggers you to spend money. It’s usually the triggers that lead you to spend money, so spending money is part of the reaction. Learn how to react to triggers in a more productive way like exercising or another positive activity.
You pay a lot of money in interest expenses when you carry debt. But the opposite is true as well – you can make a lot of money by investing your money. When you know how to stay out of debt you can focus your energy on having your money make money for you.
Here are some tips on how to stay out of debt:
Decide what is important to you
When you know what is important to you then you will make what is important to you a priority. If staying out of debt is important to you then it will be easier to action that plan.
Create a vision board
It has been known that when you create a vision board then you are manifesting your dreams. When you put on your vision board what is important to you then you are reminded by that visual daily and you work towards achieving those dreams.
Track your progress
When you are out of debt you can find new financial goals to work for, whether that be saving for a house or new car, investing your money, or whatever goal you have set for yourself. Track your progress against that goal and stay motivated.
Create new financial goals
When you achieve your financial goals create new ones so that you are always working towards a goal that will help you build a bright financial future. Building wealth and getting your money working for you is an excellent financial plan. Create passive income.
Reward yourself
When you are motivated and working towards smart goals, take some time to reward yourself for the hard work that you have put in. You can reward yourself with self-care such as taking time to go for walks, connecting with a friend, indulging in a treat. You don’t need to spend money to reward yourself.
Use cash to pay for items
It is a proven fact that when you pay cash for your items you notice your cash reserve go down more so than if you paid with plastic. Paying with cash makes your purchases more mindful – you are more aware that you are spending money and how that impacts your level of savings.
Do not use credit unless you have the money in the bank to pay for it
Do not purchase anything with credit unless you have the money to pay for it. A good practice is when you purchase something with your credit card just transfer the money over right away so that you never carry a balance on your credit card. It’s the best way on how to stay out of debt.
Use a budgeting app
Another great way on how to stay out of debt is to use a budgeting app like Mint that will help you manage and monitor your budget. It is always a good idea to follow a personal budget as a budget sets limits on how you want to allocate your money. It is setting intentions for your money.
Unsubscribe to email lists
When you sign up for email lists you are essentially giving that company permission to sell to you. You will be sent sales notifications and temptations to spend your money. Just remember, if you are purchasing something you don’t need, even if it is on sale, you have not saved yourself any money.
Do a money audit every six months
When you are mindful about your money and how you are spending your money, make it a point to review your purchases, subscriptions and memberships every six months to ensure you are staying on track. Money audits are a great way on how to stay out of debt.
The bottom line is knowing how to stay out of debt can be difficult at the beginning, but it will quickly become a habit the more you practice it. Like everything in life, it takes practice and repeated behaviours for a habit to stick.
If you are ready to create your debt repayment plan, sign up for the Debt Repayment Calculator Mini-Course to create your debt repayment plan. This course will help you list out all your debt and create a debt repayment plan that works for you. It’s simple. You enter all your debt and let the workbook calculate the rest.
