5 Ways to Become Debt Free

Debt is a loaded word, with many people associating debt with ‘bad’ automatically. But the thing is, debt is not always bad, sometimes it is necessary and can be very advantageous if you use it right. However, as you build wealth, becoming debt free is a great goal to have, both in terms of reducing your overall payment obligations and making your financial situation more resilient, in case we encounter a significant economic issue.

Here are five ways you can become debt free.

Understand your Debt and your Budget

Have you ever looked at your bank balance at the end of the month and wondered where your money disappeared to. Even if you have a healthy balance left, it can often seem to be a lot lower than you thought it was. From setting up subscriptions to websites, products and more to the amount you spend every day on coffee, it can soon add up. But your debt is often the biggest expense, and few of us know exactly how much it is all costing, or how much we still owe.

One of the best things you can do with your finances, whether looking to ease your debt burden or for anything else, is to take a really good look at how you spend money each month. Make a note of your debt outgoings, discretionary spending and essential bills, and note the balance on each debt you may have. This gives you a clear picture of the debt itself, but also your overall expenses and potential for additional expenditure into paying off debt there may be.

Prioritise your Debt

The best approach to becoming debt free is to prioritise paying that debt off. Once you have examined how you spend money, you can then begin to reallocate expenditure to reduce debt. This could be taking one less vacation or weekend trip and using that money to overpay on a debt payment instead, or it could be streamlining your outgoings a little and cancel some of those subscriptions you never use, and instead direct that money to your debt.

By finding areas where you can eliminate expenses and instead put that money to debt repayment, you can quickly pay off debts and become debt free.

Manage your Payments

Dealing with debt doesn’t just mean paying off balances, it also means not adding to the debt while you do it. Late payments or forgotten payments not only hurt your credit score, but add to your debt balance as well through additional interest and fees.

Whether you automate your payments or pay them manually, make sure that all your outgoings are paid on or before the due date to avoid those additional costs.

Debt Consolidation

While some debts are unavoidable and often useful, few of us would buy a home without a mortgage for instance, some can be a big problem if taken too far. The most common is credit card debt, which have high interest rates and cost you a significant amount if you have debt accrued, especially so if you have several cards with outstanding balances.

It may seem counter intuitive if your goal is to get out of debt, but taking out a longer-term loan to pay high interest debt like credit cards and turn them into a single, lower interest payment can help you get debt free faster than your payments being eaten up by changes and interest on multiple debt obligations.

Plan for the Future

Being debt free definitely gives you more financial freedom and confidence that you can survive any economic challenges, but it doesn’t always need to be debt free right now. Working with a financial planner you can build wealth over time with a goal of repaying all outstanding debt after a specific period of time.

As a financial professional, a planner will develop strategies to leverage your wealth to build income so that you will have the funds to repay your debt moving forward. This medium-term planning can be part of an overall financial strategy to help you achieve multiple goals and administered with confidence by a financial professional.

As expert financial planners, if you have any questions about debt or are looking for advice on planning for your debt free future, get in touch today.