This post is also available in: FR

If you’re drowning in debt, you’re probably having trouble sleeping at night. Financial stress is one of the leading causes of stress and sleepless nights, and research shows that it affects nearly half of all Canadians!

However, people with debt do have options for getting out of debt. There is hope. With time, patience, motivation and discipline, you can get out of the predicament you find yourself in. Not only will you be financially free, but your health will also improve.

If you need a way out, follow these steps to clear your debts and achieve financial freedom.

Step 1: Make a list of your debts

You can’t clear your debt if you don’t know exactly how much you owe. Pick a day of the week when you know you won’t be interrupted, make yourself a cup of tea, and go over each of your bills. List them from smallest to largest, regardless of interest rates.

Next to each invoice listed, note what each creditor requires as a minimum payment. Add these minimum payments to your monthly budget to make sure you pay them on time and don’t miss a payment.

Step 2: The snowball effect of debt

Once you have created your budget with your income and expenses, calculate how much money you have left to spend. If there is any money left over, only pay it into the smallest debt. This will help you get rid of the smaller ones faster.

Once your first bill is paid in full, you will be relieved because you will see results. Motivation is key in your financial journey to freedom!

Now that the smallest debt has been paid, take that allowance and put it on the second debt on your list – the second smallest. Repeat the steps until all your debts are paid off.

As you pay off a small debt, your debt allowance for the next bill increases and becomes like a snowball that keeps growing until the last debt is paid off.

Step 3: Earn extra income

Trying to pay off your debts with your income can be difficult, especially when you can’t afford to do so and your expenses far exceed your income. If so, consider finding a part-time job or a side hustle. The income you receive from your second job or side hustle should go toward your debt, not toward unnecessary expenses.

Here are some ideas for finding the perfect side hustle:

  • Deliver pizzas on weeknights and weekends.
  • Barman / waiter / waitress.
  • Sell handmade items on Etsy.
  • Write an e-book and sell it on Amazon.
  • Drive for Uber on your own time.
  • Work at your local grocery store on your days off.

The possibilities are endless, and working multiple jobs will not be permanent. It’s a sacrifice you’ll be making for yourself and your family that will help you get rid of that pesky debt faster.

Step 4: Emergency Fund

You can’t always control everything, and emergencies can happen when you least expect it. When you’re deep in debt and struggling to survive until the next paycheck, you can’t afford these extra expenses. What can you do to avoid these circumstances?

The best way to avoid a financial nightmare is to have an emergency fund. An emergency fund can only be used for emergencies, and no, this new outfit is not an emergency!

Examples of emergencies include:

  • Your car breaks down – this does not include regular car maintenance.
  • Unexpected medical or dental bills.
  • Major home repair services, such as a leaking roof.

As a general rule, it is recommended that you set aside $1,000 as a starting emergency fund. The best way to save money is to automate your savings so that the money leaves your account before you have a chance to spend it.

Open a high-interest savings account to take advantage of compound interest. Each month, your savings grow with interest, and your interest grows as well.

Once your debts are cleared, you can start saving three to six months’ worth of expenses to build your emergency fund.

Step 5: Stick to your plan

When you set the goal of paying off your debts, you need to stay focused and stick to your plan. In fact, you are in this mess because of a lack of planning.

You have a budget, you know where you stand financially and how much debt you owe, and you save for an emergency fund. If you feel like you are going to deviate from your goals, re-evaluate where you are and how far you have come. A pat on the back will help motivate you.

If you need to be held accountable for your debt repayment strategy, talk to a friend or family member you trust the most. Reach out to them once or twice a month to hold you accountable for your spending habits and celebrate small victories with you. Every payment you make and every debt you pay off deserves to be celebrated!

Step 6: Don't be too hard on yourself

Even if you are strict with your spending, you should also avoid being too hard on yourself. It’s okay to fail from time to time. The world is not going to end if you bought yourself some chocolate last week!

However, that doesn’t mean you can overindulge every time you walk into a store. It is essential to make every effort to stay within your budget and to remember why you are making so many sacrifices. But don’t forget to give yourself some leeway, too.

Now that your debt has been cleared

Clearing your debts is a disciplined and difficult journey, but if you remain resilient and dedicated, you can achieve anything. You will see your health improve, you will be happier and you will sleep better at night!

Once you have achieved financial freedom, start giving to those in need. Whether it’s giving a few dollars to someone in need or inviting a friend to dinner, it’s always wonderful to give back.

And most importantly, you will feel better. You deserve those extra hours of sleep.

This post is also available in: FR

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Jean-Maximilien is an expert in Canada and France about Loyalty programs, Credit cards and Travel. He is the Founding President of Milesopedia.

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