If you are debt-free this year, this guide can help!
However, whether you use any of the strategies listed in this article, one thing you need to uphold, and that’s discipline.
The good news is you can get started with debt-paying strategies early this year. The following points could be used as a guide to get out of debt quickly in 2022:
Tips To Be Debt-Free in Less Than a Year
1) Develop a Budget
Decide the percentage you can dedicate every month to pay your debt. There are multiple ways to figure out how to budget for your repayments. You can begin by noting down the emergency expenses, unavoidable and compulsory expenses, and separating these from discretionary expenses like dining, movies, or impulse buys.
Brainstorm how many discretionary expenses do you think you can do without? However, it may mean changing your lifestyle a bit, but it helps you pay the amount comfortably. If you know you can manage within $450 instead of $1000 monthly, then you can save the remaining amount to pay your long term personal loans repayments. Or you can consider debt consolidation if the amount doesn’t affect your lifestyle.
2) Improvise on Debt data
The next thing to do is to analyze and re-visit your pending debt and receipts in your credit report. Analyze the debts you are left with – like student loans, car loans, home loans, credit card balances, etc. Gather the following information for each lender:
- Lender’s name
- Payoff amount
- Interest rates.
- Expected day off date
- The amount you pay each month
However, a home mortgage has a low-interest rate. You still need to consider it while defining a budget. You can de-prioritize a loan that has 0% interest.
3)Adopt ways to pay back the loan quickly
When you are done with planning your budget and analyzing the remaining debt, it is critical to consider the methods of repaying the loan. Here are some of the famous methods that can help you get debt-free within a year:
- Snowflake- it involves using a small amount of money to pay and manage debt. For example, if you have spare change, you can use it to pay off debt. However, it sounds insane, but it works.
- Snowball method: Through this method, one can pay any level of debt, a small or a larger one. It focuses on the idea of eliminating the entire debt and getting debt-free quickly. And it helps you maintain financial discipline.
- Avalanche method: Individuals can use this method to pay the highest interest loans first. Once they pay off that, they can move on to the low-interest ones. And the fact is, choosing to pay a high-interest loan first can help you save good money.
Doing so, or adopting any of the methods listed here, can help you get debt-free and pre qualify for a personal loan without hurting credit hassle-free.
4)Manage credit card payment and avoid overspending
According to experts, one should use or dissolve the credit card limit up to the extent he/she is comfortable paying it.
If you want to get out of debt quickly, then you should plan your credit card expenses. However, it is important to analyze how much you use a credit card in a month, and could that limit be controlled monthly?
5)Consider consolidating your debts
Personal loans have a lower interest rate than credit cards. However, it is higher than personal loans or secured loans. Chances are, your monthly payments will be lower than your combined payments. The advantage of consolidating your loan is that you can rationalize a payment at a later date.
And this means the interest levied on the consolidated loan will be higher than before. The practical approach to managing such a situation is – paying more than the minimum amount every month. For example, if you merged all your debts and balances and secured a 40% reduction on previous payments, you can use a portion of that amount to pay down the consolidated loan quicker.
6)Build Good financial habits
Building good financial habits is important, especially if you are an impulse buyer or do not budget enough for the month. Here are some steps to stick to a good financial routine:
- Ask yourself, “Do I need this item?” before conducting a purchase.
- Instead of ordering food frequently, try cooking most of the time.
- Knowing what you want to cook ahead in the week and what you need to buy exactly when you enter a store will help you refrain from impulse buys. Make a list and check it twice. Else, you miss out on something important.
- It is essential to assess your values and analyze what’s important before falling for fake appearances, something that’s not you.
- Sell something you don’t want any more on Facebook or different platforms. Analyze the things lurking unused in your home and make a list. It will help you secure some money and help you pay off the debt quickly.
7)Cash-in your life insurance
However, it is something one should think of as a last resort. It is possible to do so. If you can, you can pay off a sizeable chunk of debt quickly by encashing your insurance fund. You can especially consider this sum. If you don’t need money immediately and do not have any beneficiary attached to it, you can use the funds.
However, there could be limitations to en-cashing your life insurance plan, which may not work for all. It is ideal for those with whole life policies with good cash value.
In case you have beneficiaries on insurance, you can tap into the cash value of your whole life insurance policy. And you can leave a part for your beneficiaries as well.
8)Use your Tax refund to pay down debt
While it’s tempting to splurge on a high-ticket item or go on vacation with the tax refund check, a smaller move is to pay down some of your debt.
Consider the value of reducing your monthly payments with a single lump sum debt payoff strategy. You’ll enjoy the benefits of a lighter debt load over the entire year.
In this way, you can get debt-free in less than a year. You just need to pay your debts, which are some of your credit card bills. Then you repay the remaining debt over a 3-5 yr period. You can start getting out of debt this year and take control of your financial destiny. By following the tips in this plan, you can have the motivation and discipline to stay on track.
Description: How to get debt-free within a year? These are some ways you can get debt-free in a year.