How To Pay Off Debt And Break The Debt Cycle
Do you want to pay off debt and learn how to break the debt cycle?
Do you feel like you are in a never-ending cycle of debt? You pay off one loan and then take another causing you to jump right back into the cycle. Feels a little like a hamster on a wheel right? You’re not alone, so many people are trapped in this cycle and keep running on the wheel.
Debt is stressful, it can cause anxiety and make even the strongest person feel hopeless. I’ve been there and it’s not the type of feeling any of us wants to experience.
There’s often a negative connotation with debt but, you may have debt for very valid reasons. Student loans, car loan, even a mortgage. Student loans can lead to a higher paying job. Your car loan can be what allows you to drive to that job and your mortgage can be a vehicle that takes you to an increased net worth. Not all debt is bad.
The kicker is not borrowing more than you need – need and want are two very different things. Buying a home that’s going to make you house poor or stretch your budget is a terrible idea. It takes good debt and turns it into bad quickly.
Most debt is completely avoidable but, we’ve all been conditioned to finance our futures. Debts like credit cards, personal loans, lines of credit, and even car loans (I’ll get to that in a minute) keep you in the debt cycle.
Spending more than you can afford on anything at any given time is a sure fire way to remain in debt.
Yes, you need a car to get to work but, many people take out longer loans to “afford” a nicer car. Don’t do it! If you can’t afford to buy a car in cash then buy the cheapest, yet reliable car you can find and in turn take out the smallest, shortest loan possible.
If you truly want to get out of the debt cycle spending more than you can afford or keepin’ up with the Joneses isn’t going to be an option.
It wasn’t long ago that I went into over $100k of debt to open a new business. It made me sick to my stomach because I can’t stand debt but, it was my only option. The road to paying it all off is finally coming to an end, it hasn’t been pretty and I can’t say I’d ever do it again but, I promise you it can be done.
Learning how to pay off debt and break the debt cycle isn’t easy but, it is completely possible. Being debt free creates freedom and allows you to save for your future. Retirement anyone? Emergency fund? Savings?
What Is The Cause Of Your Debt?
Time for the truth bomb. Like any other problem, you’re tackling starting with the facts and facing them head-on is the only way to solve it. Think about why you’re in debt. What led to the amount of debt you have?
Keep it real, you’re probably going to feel a little uncomfortable. Maybe even break out in a sweat but, you have to understand what led you to where you are. Are you trying to keep up with the spending and luxuries of others?
Keep in mind you’re in a debt cycle and your goal is to break it. You have to understand the root of the problem in order to prevent yourself from repeating history.
Determine How Much Debt You Have
Bust out the calculator and add up the total amount of debt you have. Again, this is probably going to make you a little uncomfortable. Totally normal and you’re not alone. Adding up the total debt you have will then allow you to formulate a plan to pay it all off.
Most people have no clue how much debt they have. Not only do you need to know how much debt you have to pay off you also need to know the interest rate tied to each loan in order to determine which debt is costing you the most each month.
I’m old school and use a spreadsheet. It allowed me to see which debt I needed to dive into first and helps me strategize towards being debt free. There are plenty of other tools you can use if you prefer something more modern to a spreadsheet. Just be careful handing out access to your accounts to a third party site.
Make A Budget
Far too many households don’t have a budget. I don’t care what your financial situation is, you can be broke or loaded, you need a budget regardless. Without a budget, you have no way to track income and expenses. Not having a budget is financial suicide.
When you make a budget you are taking the first step to be debt free and break the debt cycle. Budgets are the guiding path for managing cash flow, expenses, and savings. Maintaining a budget will help you take control of your finances.
Try using EveryDollar, a FREE app from Dave Ramsey to help you learn how to budget. This tool is very helpful in learning how to pay off debt.
Pay Off Your Debt
This is the meat and potatoes of becoming debt free and breaking the debt cycle. If you have debt you can’t break the cycle. Paying off your debt is life changing. It will save you thousands on interest and free up money in your budget to put towards an emergency fund, savings, and retirement.
Not to mention make you feel like a badass when you have it all paid off. Think about how amazing it will feel when you make your last payment on your last loan and become debt free. Like a kid on Christmas morning!
You won’t get there overnight, none of us does. Committing to paying off your debt is the first step and the second is actually doing it. The months will turn into years and with every payment you make you’re taking a step towards being debt free and breaking the debt cycle.
So, how does one pay off debt? Read more below to find out tried and true ways to pay off your debt and continue to live debt free. It’s not just about getting out of debt, it’s about staying out of debt and making it a way of life!
Spend Less Money
This sounds simple, and it really is yet so many people live paycheck to paycheck or worse beyond their means. Spending more than you make is going to land you in debt and is going to crush your finances.
Spending less money will not only help you pay off debt it will also become a habit that will improve your finances. I choose to be frugal, my husband might even say cheap. I’m the type of girl that dries her hands with a paper towel after washing them and then flattens it out to dry and be used again.
I know what an impact spending less makes on my life. Every dollar saved gets me closer to financial freedom.
Living frugally today means being able to retire down the road. Use that for motivation.
No matter what you always have to spend less than you earn and when you’re paying off debts you need to spend as little as possible. Doing so will free up more cash to be put towards destroying your debt.
Save More Money
Save more money ties into spending less money when it comes to paying off debt and breaking the debt cycle. They go hand in hand. Think about it …
If you find ways to save more money that in turn means you can take the money you saved and put it towards paying off your debt.
Saving money is a habit you want to implement in your life whether you have debt to pay off or not.
5 Ways To Save Money Even On A Tight Budget
Make More Money
Earning more money is never a bad thing. I used to say extra money but, that makes it sound like it’s just icing on the cake and that’s not what I’m getting at. More money equates to more freedom. Having more money coming in can mean paying off debt faster, no longer living paycheck to paycheck, not spending more than you earn, and adding to savings.
We always hear money doesn’t create happiness but, it does create freedom and in order to get yourself to a position of financial freedom you need money.
When I took on debt to expand my business I knew I wanted to make more money to pay it off sooner. Making money online allowed me to do it the evenings and early mornings so that it didn’t impact my already busy schedule. It takes sacrifice to do but, if it means getting rid of your debt there’s no question it’s worth it.
How To Start Making Money Online
Stop Using Credit Cards
Before you dig your heals in hear me out.
We have all been conditioned to think that we need credit cards. Sure, they can be great for cashback and rewards but, not if you don’t pay them off every month. That cashback sure won’t cover the interest you’ll be paying if you don’t.
So, if you have credit card debt your problem could be that you don’t know how to responsibly use them. Maybe they just call to you and tempt you every time it’s time to buy something. Maybe you tell yourself oh, I’ll pay it off at the end of the month and then when it comes you’ve already spent your money.
Setup bills such as your mortgage or rent, car payment, and utility bills to be pulled directly from your bank account. Then operate on a cash budget for everything else for the month.
What do I mean by cash budget?
You take out cash for the budget you’ve set for your other monthly expenses and use it to pay for your purchases. Spend wisely though, once it’s gone, it’s gone. I find spending with cash makes you think more about what you’re buying.
Swiping a card and not seeing how much money you owe to the credit card company is painless until you realize you’re in a pile of debt. If you know you only have $100 in your wallet to spend including on food and there are two weeks left in the month I guarantee that you’ll put thought into what you spend that money on. Goodbye impulse purchases!
Worry About Yourself
This could be the hardest of all of these. I’ve been there … we’ve all been there at some point. Wanting to keep up with someone else is never good for your finances.
Keepin’ up with the Joneses is not a part of the get out of debt plan. It adds to your debt because if you’re trying to keep up with someone else you will spend money that you don’t have.
Sure, your friends brand new fancy car or new house is beautiful but, that’s nothing you need to worry about.
Stay in your financial lane and worry about yourself. You’ve got goals, big, badass financial goals that are going to put you in a position to have financial freedom. Buying something and putting yourself further into debt because of what someone else has is only going to set you back on your goals.
Don’t invest any energy into what other people do or buy. It’s your life, your finances and the happiness that comes from financial freedom is priceless.
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