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Are you in debt?
If so, you know the unbearable pressure of those monthly credit card statements, calls from collection agencies, and the stress of not seeing the light at the end of the tunnel.
The good news is you're not alone.
According to a report by Pew Charitable Trusts, millennials (born between 1981 and 1997) are more likely to have student loan debts (41%), car loans (41%) or credit card debt (39%) than have home ownership debt.
I was over $95,000 in debt in my early 20's…
I was sold the “American Dream” that said I needed the big ass house, luxury cars, and the biggest and best TV.
Even though I was making good money at a corporate job, I felt like I was on a hamster wheel working at a job I hated to pay for shit I didn't need.
Thankfully I've broken the cycle of consumer debt slavery, and I want to show you 3 ways that can help you eliminate debt fast.
Step 1 – Build Your Debt Elimination Momentum By Paying Off Your Most Expensive Debts First
Usually, this means your credit card debts. Pew Charitable Trusts report that 39% of Americans have unpaid credit card balances. Even worse, most credit card debt is racked up on unnecessary consumer goods like TVs, iPads, expensive dinners, and alcohol.
Pay Off Expensive Debts Before You Save
Some people want to save some money ‘for a rainy day’. The problem is you will actually lose money by saving in a low-interest savings account instead of paying off expensive debts first.
You see, most savings accounts will give you nothing more than 1% interest at best, but credit card interest rates range between 14.01% to 29.99%!
When you hold onto credit card balances instead of paying it off completely, it’s like taking one step forward and two steps back. It's like using compounding interest against you.
Negotiate, Negotiate, Negotiate
If things are out of hand, don’t be afraid to ring your credit card lenders to negotiate lowering your interest rates or a reasonable repayment schedule.
Most of them would rather have a customer that is capable of paying off their debt, rather than default completely on them.
There are many ways you can negotiate with credit card companies. Here's the most effective ways you can negotiate to pay down debts quickly:
- Lower Interest Rate – Let your credit card company know you plan on making a consistent monthly payment if they'll lower your interest rate. Credit card companies like knowing they have the possibility of income from future payments. This is called a “workout arrangement”, and could also save you money on fees. However, they may cut off access to any additional credit left on your card.
- Lump-sum Payoff – If you have extra savings that's not making much money (in addition to your emergency cash), then you could use that to negotiate to pay off the entire debt for less than what's currently owed. This is called a “principle reduction”, and would completely eliminate the debt with a single payment.
Alternatively, consider consolidating your credit cards into one account to make it easier to track. Disorganization and confusion usually results in missed payments and procrastination.
Step 2 – Change Spending Habits And Make Temporary Lifestyle Adjustments
Eliminating debt from your life fast requires habit and lifestyle changes. Sometimes we have to make temporary lifestyle changes to put us in a better place.
For example, during my debt payoff period, I told my girlfriend (now wife) that we couldn't go out to eat until my credit cards were paid off. Now we get to eat wherever we want. In fact, as soon as I'm done writing this we're headed to the top seafood restaurant in our city!
A little sacrifice goes a long way!
So, change your current spending habits and learn to live within your means. This doesn’t mean that you have to give up all the fun stuff in life; you just have to get smarter about it!
Here are some suggestions:
- Cut the cord on expensive cable subscriptions and subscribe to cheaper services like Netflix or Hulu.
- Stop drinking alcohol. You'd be amazed at how much money the average person spends on booze.
- Cook more, dine out less.
- Spend time with your kids over buying them expensive toys.
Reallocate A Larger Portion Of Your Income To Paying Down Debts Fast
Let’s be honest, not many of us like budgets. I have a hard time sticking to them because life throws us curve balls.
But try to see a budget as a new best friend that can help you eliminate debt, make decisions on how much you want to spend, save, and splurge.
That’s right! Budgets don’t have to be boring and restrictive.
If you can reduce your overall expenses, you can still use any leftovers to splurge as a reward.
Here's how to “invest” more of your income on paying down debts:
- Work out your take home pay
- Subtract all your essential expenses
- Reallocate 50% or more of your additional cash flow towards paying down debts
- Pay off the smallest debts first to gain momentum, and then pay off the debts with the highest interest rates
There are free tools like Mint.com or Excel spreadsheet that can help you keep on track with your spending. Create a reminder on your calendar to review your finances weekly if not daily.
Step 3 – The Game Changer: Create An Extra Source Of Income
It's rare to hear about someone saving themselves into wealth.
Lifestyle adjustments and budgets can only get you so far…
The massive shift from debt to wealth come with extra sources of income!
You may be at a point where you are truly living on bare minimum expenses, and you can’t cut spending anymore. No problem, it’s time to find ways to create more sources of income.
Purge And Profit
The easiest and fastest way to generate more cash is to sell the stuff you don't need.
Do you really still need your old CD collection from the 80s? Or what about that computer game that you have played a million times already and is now collecting dust on your shelf? Sell off stuff you no longer need on places like Craigslist or Ebay. There are many, many free sites online that allow you to sell your stuff without cost.
Freelance In Your Spare Time
It's so easy to create additional income writing articles, doing administrative jobs, or putting your creative talents to good use.
Any extra income should go towards paying down and getting rid of existing debt immediately, including work bonuses.
And last but not least, keep yourself inspired and accountable by hanging out with other people who are successful in their lives financially. It will rub off!
For more ideas about how to make more money, check out this post and podcast episode: 7 Real Ways To Make Money Online.