Is a Debt-Free Life Possible? (The Answer Is: Yes!)
Maxed out credit cards. Payday loans. Cash for titles.
Are these some terms you’re all too familiar with these days? If so, you’re like many Americans, dealing with a pile of debt that keeps getting bigger. It may not be the best feeling in the world, but believe this: your situation is not hopeless.
While many factors like unemployment and poor health can contribute to debt, a large portion of personal finance is determined by human behavior. In other words, your habits and mindset have also contributed to debt, whether you’re aware of it or not.
This is actually good news, as this means much of what will change your situation is within your control! A few consistent changes in your behavior will help you steadily climb out of debt. It will take hard work, dedication, and commitment, but you can do it.
If you’re in debt, here are nine ways to get your finances back on track:
1. You Are the Most Important Bill You Pay
With every paycheck or form of income you receive, pay yourself first. Whether it’s 10% or $100 per paycheck, systematically set aside money into a savings account—no matter what. That way, you have the cash set aside to cover true emergencies, so you don’t have to resort to high-interest borrowing (like credit cards) to cover the cost. (While setting aside enough cash to cover 3-6 months of living expenses is ideal, build a starter fund of $1,000 before paying extra towards your debt.)
2. Set Up Automated Bill Pay
After paying your most important bill (you), automating bill and debt payments may boost your credit score since you will be paying on time each month. Not only that, paying bills on time reduces late-payment fees and the potential for increased interest rates which makes clearing your debt even more achievable..
3. Pay Off Your High-Interest Loans Systematically
Make sure you’re steadily paying down your debts no matter what, but there are a few debt-reducing strategies you may want to consider trying. Some people like to pay off a loan with the smallest balance first for a boost of motivation. Others prefer to focus on paying down debts with the highest interest rate first, which can result in paying less interest (aka profit to your debtors) when all’s said and done. Whichever route you go, make sure you’re committed to your pay down plan of choice.
4. Slash Spending
Say adios—for now!—to new clothes, the latest electronic gadgets, big meals at fancy restaurants, and frequent trips to the movies. Find new ways to trim those grocery bills: Can you swap out steak for ground beef? Can you cook at home instead of picking up a pizza pie? Saving $7 a day by packing a lunch adds up to $49 a week, which can work toward getting you out of debt sooner. (Just remember: when you save money by sacrificing certain indulgences, make sure you don’t overspend in other categories as mental compensation – pay down your debts!)
5. Consider a Roommate
Splitting the cost of rent and utilities can make a huge impact, as housing tends to be the largest budget item for most people. If the thought of sharing a space with a stranger is unappealing, look into moving in with family or friends. Maybe downsizing to a studio apartment is an option. Get creative: you stand to save a lot more money by reducing big budget items.
6. Track Your Expenses Regularly
You might be surprised to learn that it’s the tiny expenses that you don’t even think about that get you into the most trouble and feed your debt habit. Lunches and vending machine snacks add up! Writing down everything you spend money on every day —yes, everything, every day—can open your eyes and reveal behavior that might be crippling your ability to pay off debt quickly. (Bonus: If you’re more digitally oriented, log in to check your bank and credit card balances every day so you can do a quick scan on all your spending while looking out for potential fraudulent charges in case you’ve been hacked.)
7. Increase Your Income
Increasing your income is always a good thing! It provides you an opportunity to put extra money toward your debt at an accelerated rate. Lots of task-oriented jobs (including delivery or ride-sharing) let you set your own hours, so you’re earning extra money when it’s most convenient for you. If you have a skill that’s marketable online, look for freelance job websites where you can post your experience, job availability and hourly rate. Selling clothing, toys, or other items which no longer serve you is easier (and more profitable) than ever, thanks to the Internet.
8. Know Your Credit Score—and Resolve Any Errors
A great credit score opens the doors to some of the things or experiences you want in life: a new home rental or purchase, buying or leasing a car, getting a new smartphone, or even opening your very own business. A poor credit score can result in high interest rates on credit cards or loans (which means even more debt down the road). Plus, monitoring your credit report can help you spot any errors that may be costing you more money in the long run, like identity thieves who may have gotten your info in a major hack.
9. Set Goals
Are you excited about the prospect of becoming debt-free? If not, adjust your thinking! Imagine how you will feel when you have an emergency fund that covers three to six months of expenses and money in your savings account to enjoy as you please. Maybe you’d like to travel to a different country or just take a long staycation. Whatever it is, remind yourself often that it’s in reach to stay motivated to make lasting changes to your behavior!
Ready to get out of debt? Talk to a USAA financial advisor at (800) 427-USAA.
Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer.
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