How to Live Debt-Free

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You might think of being in debt as a way of life, but it is not inevitable. Ideally, you should live without any debt save for your mortgage, and for some people, even that is unacceptable. You might eventually decide that the benefits of living without the stress of any debt at all is worth forgoing some of the benefits of paying off your mortgage more slowly, but for now, focus on becoming debt-free in the other areas of your life and not accumulating more debt.

debt-free-person

Review What You Owe

You should first take a look at everything you owe: student loans, credit card debt, your car loan and anything else. Which one is the smallest? Which one has the largest interest rate? You need to focus most of your energy on one or the other. The former may be more psychologically satisfying because you can pay it off quickly, but the latter may save you money since you are getting rid of the high-interest one first. Ultimately, you should choose the one that will be the most motivating to you. Put most of your money toward that, and just pay the minimum on everything else until it is paid off. Then, turn your attention to the next largest or the next highest interest rate debt.

Review Your Lifestyle

To get more money to pay down debt, you might want to look at whether there are ways you could make some changes in your spending. This might be small things, such as cutting back on online shopping. However, it could also be large items. You could move to a smaller place or get a roommate. You could sell some items you don’t use. If you a life insurance policy that you do not need, you can get multiple benefits from selling it. First, you would no longer pay premiums, but second, you might be able to get a lot of cash through a life settlement. You can review a guide on how to do this and whether your policy might be eligible.

Have Emergency Savings

The next step is to create an emergency savings fund. Debt often starts because of an unexpected incident: a dental emergency, a sick pet, or a car repair. You put it on your credit card, and then you have to pay it off. Interest rates mean you end up paying a lot more than the original amount. With emergency savings of anywhere from three months to a year of expenses, you can feel confident that you can weather most events, even a temporary job loss.

Use Credit Cards Wisely

Since you’re no longer going to use credit cards in emergencies, should you get rid of them? Only if you find them irresistible. Credit cards can be useful in building your credit score, and you can get cashback and other benefits from them. They can also be handy when you are traveling, for reserving flights or accommodations. The key is to pay the balance off every month so that you are never paying interest.

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How to Live Debt-Free
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Since you're no longer going to use credit cards in emergencies, should you get rid of them? Only if you find them irresistible.
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