If you’re drowning in debt, you’re most likely struggling to sleep at night. Financial stress is one of the leading causes of stress and sleepless nights, and research shows this affects nearly half of all Canadians!
However, it’s not the end of the road for anyone in debt. There is hope. With time, patience, motivation, and discipline, you can get yourself out of the sticky situation you’re in. Not only will you be financially free, but your health will improve, too.
If you need a way out, follow these steps to erase your debt and live a life of financial freedom.
Step 1: List Your Debt
You can’t erase your debt if you don’t know exactly how much you owe. Pick a day during the week when you know you won’t get interrupted, make yourself a pot of tea, and go through each of your bills. List them from smallest to largest, regardless of the interest rates.
Next to each listed bill, write down what each creditor requires the minimum payment. Add these minimum payments to your monthly budget so that you can be sure to pay them on time and not miss a payment.
Step 2: The Debt Snowball Effect
Once your budget gets created with your income and expenses, work out how much money you have left to spend. Whatever money is left over, pay it into the smallest debt only. This will help you get rid of your smallest debt faster.
Seeing your first bill fully paid will make you feel good, as you see results. Motivation is vital in your financial journey to freedom!
Now that the smallest debt got paid, take that allocation and put it towards the second debt on your list – the second smallest. Repeat the steps until all your debt gets paid.
As you pay off a smaller debt, your debt allocation for the next bill becomes larger and becomes like a snowball that keeps growing until the last debt gets paid.
Step 3: Get Extra Income
Trying to erase debt with your income can be difficult, especially when you don’t have the money to do so and your expenses far exceed your income. If this is the case, consider getting a part-time job or a side hustle. The income you receive from your second job or side hustle should go towards your debt and not to unnecessary spending.
Here are a few ideas on finding the perfect side hustle:
- Deliver pizzas on weeknights and weekends.
- Bartend / waiter / waitress.
- Sell handmade items on Etsy.
- Write an eBook and sell it on Amazon.
- Drive for Uber in your spare time.
- Work at your local grocery store on your off days.
The possibilities are endless, and working more than one job won’t be permanent. It’s a sacrifice you will make for both you and your family and help you get rid of that lousy debt quicker.
Step 4: Emergency Fund
Life happens, and emergencies can occur when you least expect it. When you’re deep in debt and struggling to survive, you can’t afford these additional expenses. What can you do to avoid these circumstances?
The best way to avoid a financial nightmare is to have an emergency fund saved. An emergency fund can only get used for emergencies, and no, that new outfit is not an emergency!
Emergencies can include the following:
- Your car breaking down – this does not include regular car maintenance.
- Unexpected medical or dental bills.
- Major home repair services, such as a leaky roof.
A rule of thumb is to have $1,000 saved towards a starter emergency fund. The best way to put money away is to automate your savings so that the money leaves your account before you get a chance to spend it.
Open a high-interest savings account to benefit from compound interest. Every month your savings will grow with interest, and your interest grows interest too.
Once your debt has gotten erased, you can start saving towards three to six months of expenses to use as your emergency fund.
Step 5: Stick to Your Plan
When you set yourself a goal to pay off your debt, you need to remain focused and stick to your plan. As it is, you’re in this mess due to a lack of planning.
You’ve got a budget, you know where you stand financially and how much debt you owe, and you’re saving for an emergency fund. If you feel like you’re going to slip from your goals, re-evaluate where you are and how far you’ve already come. A pat on the back will help motivate you.
If you need to be held accountable for your debt repayment strategy, tell one friend or family member you trust the most. Get in touch with them once or twice a month to hold you responsible for your spending habits and to celebrate the small wins with you. Every payment you make and every debt you pay off deserves a celebration!
Step 6: Give Yourself a Break
Even though you’re strict with your spending, you also need to give yourself a break and not be too hard on yourself. It’s all right to fail every once in a while. The world is not going to come to an end if you bought yourself chocolate last week!
However, this doesn’t mean you can go overboard every time you walk into a store. It’s essential to make every effort to stick to your budget and remember why you’re sacrificing so much. But remember to give yourself grace, too.
Now That Your Debt is Erased
It’s a disciplined and challenging journey to get your debt erased, but if you remain resilient and dedicated, you can achieve anything. You’ll see your health improve, you’ll be happier, and you’ll sleep better at night!
Once you’ve reached financial freedom, start giving to those in need. Whether it be a few dollars to someone who needs it or taking a friend out to dinner, it’s always wonderful to give back.
And most importantly, rest easy. You deserve the extra hours of sleep.