5 Steps to Becoming Debt Free

If you’re in the red, chances are you don’t want to be. Drowning in debt is not only stressful, but it also can come with serious consequences. But don’t worry. With a little know-how, a lot of dedication, and a few easy tips, you can dig yourself out of that hole you’ve fallen into.

Here’s how to get out of debt and start living life debt free!

#1: Start Budgeting—Seriously

This might seem like an obvious solution to a complex problem, but diligent budgeting can make a huge difference when it comes to paying off debt. The key word here is diligent. If you’re struggling with debt, you probably already know you should be budgeting.

Here’s how to actually start doing it:

  • Track all your expenses – Maybe you’re already budgeting for big ticket items like rent or your mortgage payment. While accounting and planning for your biggest expenses is a good start, it’s not going to get you out of debt. That iced coffee you bought on the way to work? Track it.
  • Auto-payments are your friend – Do you find yourself forgetting to pay your internet bill month after month? If so, you already know that late payments can turn into late fees. Avoid paying more than you need to by setting up auto-pay. Just be sure to keep enough money in your bank account to avoid overdraft fees.
  • Get with the times – Sure, a spreadsheet can be a good tool to keep in your budgeting arsenal. However, it’s 2020 and there’s an app for everything—including your budget. Budgeting apps allow you to save, track your expenses, and plan your spending right from your phone.

#2: Learn Your Lesson

A little financial literacy goes a long way. If you’re reading this, you’re already taking steps toward a better financial future. Don’t stop here. Dust off those old finance 101 textbooks, spend some quality time on the internet, and don’t be afraid to ask for help. The more you know, the easier it will be to start understanding how to get—and stay—out of debt.

#3: Tackle Your Taxes

Getting on the financial straight and narrow means you’re going to have to confront your IRS fears. If you don’t know your W-2s from your 10-99s, there are still plenty of easy ways to manage one of life’s unfortunate inevitabilities.

  • Every day is Tax Day – You might wish you could wait until April 15th starts approaching to begin thinking about your taxes. The reality is you should treat every day like Tax Day by saving receipts for your expenses, setting aside tax funds if you’re a freelancer, and tracking your income.
  • Use refunds wisely Getting money back? Congrats. Spend a few minutes reveling in your financial good fortune. Then put the money towards paying off your debts. No one said that was vacation money…
  • If you owe, don’t panic – Owing the IRS is scary. The biggest key to dealing with IRS debt is dealing with it fast. Whether you pay if off or file for an Offer in Compromise (an option that allows you to settle with the IRS for less), you need to face this financial challenge right away.

#4: It’s a Marathon and a Sprint

Getting out of debt is a lot of work, both in the long and short term. On the one hand, making a plan to pay off debt in the long run is important, but so is knowing which kind of debt you should focus on first.  As a general rule of thumb, make paying off high-interest debt your first priority. This strategy will help you avoid accruing an even longer list of IOUs. 

#5: Save Minimalism for Your Closet

You’re only human, so it’s understandable why you’d be tempted to consistently pay the minimums on your debts. However, to get out of debt, you’re going to have to resist the urge to use spare funds to buy that new pair of shoes, and instead pay more than your monthly minimums.

Remember, compromise means progress. Once you’re out of debt and you budget properly for your shoe fund, then you can have a field day on Rodeo Drive.

Paying Off Debt Will Pay Off

Like any journey, becoming debt free is going to have its obstacles. Even when you encounter set-backs, don’t get discouraged. Remember why you wanted to get out of debt in the first place, and think of how proud you’ll be when you’re safely in the green.

By following the tips above, you’ll be well on your way to a better financial future.

You’ve got this!