Dealing with debt can be overwhelming and straining on your finances. If it is your goal to be debt free in 2020, take a look at our top tips.
Set a Firm Budget
First and foremost, evaluate your income, debt and expenses, then set a firm budget using those numbers. This is a great way to figure out exactly how you’re currently spending your money, and where you are being frivolous, to help know where to make adjustments. If your income doesn’t cover your expenses, it may be time to consider asking for a raise at work, taking on a second job, or adjusting your lifestyle to live below your means and focus on paying off debt.
Use the “Debt Snowball” Method
If you haven’t heard of this debt reduction strategy, the debt snowball method presented by money management expert Dave Ramsey provides a plan to pay off debts in order of smallest to largest, then as debts are paid, rolling that money into the next smallest balance. Here’s Ramsey’s process:
- Step 1: List your debts from smallest to largest.
- Step 2: Make minimum payments on all your debts except the smallest.
- Step 3: Pay as much as possible on your smallest debt.
- Step 4: Repeat until each debt is paid in full.
Streamline & Simplify
Create an “automated budget” by setting up auto-payments for each paycheck to cover your bills and add to your savings account. This helps avoid spending income on non-essentials because you’ve spent the money before it even gets into your “spending” account. You can also simplify your lifestyle by cutting out unnecessary spending and putting daily practices into place, like making your coffee at home or packing your lunch for work. While this step can be one the hardest of all – we all love our Starbucks — remember that this is only temporary but is necessary to help give you financial freedom to do even more in the future.
Consider a Refi
If you’re a homeowner, there’s a chance you’re paying a higher interest rate than today’s rates. By refinancing to lower your interest rate, you can save money on your monthly mortgage payments that frees up cash to help pay down debt. Or, depending on how much equity you have, you could even do a cash-out refinance to pay off credit card debt, car loans, personal loans, school loans, etc.