For the average american, debt is normal, debt is good; debt is a way of life.
That is not the way of life I desire and I chose to not live with any outstanding debt except for my mortgage. If you are currently trying to get out of debt and have student debt, unpaid credit cards, or outstanding loans; you are at the right place to take the step towards a better future. We all have the opportunities in front of us and we need to take charge of our personal finances!
Depending on your outstanding balances, this might take more than a year but keep in mind that by changing your habits and starting off on the right path, anything is possible. Live happily and debt-free!
Credit cards are not meant to be used as loans
The best way to think of your credit card is a way of payment, not a loan. I recommend you use rewards cards for all your day-to-day purchases simply to maximize your cashback. However, you really need to make sure you pay back the full balance on time. If you currently have balances, I would suggest you look for credit card issuers that offer balance transfer promotions like 0% interest for the first year. In Canada, look out for promotions from MBNA or from your local bank for 0% offers. Following the next few money saving tips should help you pay off that balance within that time-frame.
Know where it is all going
For total financial freedom, you need a budget. Back in the days, you would need to do spreadsheets of every single account you had and compile all of it manually but nowadays, you can let Personal Capital do it all for free! With the money-management tools offered now, it is easy to track all your bank accounts, investment accounts, 401k, credit cards, and mortgages, all in one place. It is important to oversee all your accounts as a whole to properly allocate and budget.
With a better understanding of exactly where your money is going, you will quickly notice the unnecessary spending that incurs each month. Of course, you need to know yourself. If you are the kind of person who sees credit cards as an easy way to track your spending, then use them. However, if you are the kind of person who swipes away without seeing the dollars go, then cash might be better for you. For some, cash is a way to see that they are spending.
I know that for myself, I tend to just spend any cash I have and cannot track it so spending on credit cards is my way to see where my money is going. Whichever way works for you, try to keep an eye on where your money is going.
Cut the unnecessary spending
You will quickly see that once you start thinking in years (or even decades) the small things can get really expensive. For example, an easy 5 minutes spent to make yourself a lunch for work will save you thousands! Let’s do the math; the typical fast-food meal will cost about 10$, over a year, that is 2500$. All that for fat, sub-par food, 5 days a week, for 50 weeks a year. Bringing leftovers to work or making a good’old sandwich is a huge money-saver and it will keep you healthier than restaurants.
Still not convinced? Assume you pay off a 2500$ balance on an outstanding credit card; you will save $525 of interest in a single year! (Assuming the typical interest charge of 21%) With that in mind, look up your budget and try to find as many purchases you can to cut or substitute. You do not need to eat Ramen noodles and beans every day to save a few dollars, read through my money saving tips and our spending budget to learn a few tricks!
If you cannot remember why you bought it, you didn’t need it.
Consolidate your debts
If you have large balances on student loans or other debts, you can always shop around for a better rate. Online portals now make shopping for rates much easier and applications more convenient. The best place to start looking would be SoFi. Their online platform is easy to use and might make you save thousands on your student loans, credit card debt, and mortgage. You can also call your bank and see if they would offer a lower interest rate loan to help you consolidate your debts. Getting a low-interest loan to pay off your existing debts will lower the total interest you pay and let you keep more money in your pockets. This will make it easier to pay off your debts quicker.
If you are wondering how to become debt-free in a year, simply follow the basic steps I took to turn my life around and become an over-saver rather than an over-spender. Living below your means is not, in any way, living in poverty or eating soup every single day! Live happily, Xyz.