Financial Education

Debt elimination plan: the best way to get rid of your debt

There is a simple way to get rid of your debts and prevent them from returning one day: get to know a good debt elimination plan in 6 steps!

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Get started on your debt elimination plan today

Sad, worried, angry man sitting on the grass
Learn the right way to pay off debt without compromising your current budget. Source: Pixabay

Indeed, if there’s one financial knowledge everyone should master, it’s how to implement a debt elimination plan.

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This is as important a feature as a spare tire on a car: you don’t want to use it, but if you do, it’s important to know how to do it.

So, read this article to learn how to eliminate debt without compromising your budget when it appears!

Say goodbye to your debt by following these 6 steps

Person writing numbers in notebook around money, calculating (debt elimination plan)
Step #1: List all your debts. Source: Pixabay

Indeed, every financial move you make needs to be planned. If you have a goal, you can never think about accomplishing it when you have money left. If you don’t plan, there will never be leftovers.

And if money is left over, it will likely be spent frivolously, as you haven’t planned how to “protect your money from yourself.”

So it doesn’t matter if you’re seriously in debt or have decided to pay off your debts at a time when they still aren’t jeopardizing your budget.

Discover this debt elimination plan and learn how to eliminate your bills with peace of mind.

Calculate your debts

I understand that, for some people, it is more comfortable not to know the real size of their debts.

After all, it’s frustrating to discover that you “don’t know” how to manage your own money or that you can’t afford the standard of living you have today.

However, know that you need to write down each of your debts on a piece of paper or spreadsheet. This will be important, as it is impossible to defeat an enemy whose size or strength you do not know.

So, this will be your first task: list all your debts. To avoid forgetting any, search your memory and ask for your credit report.

Organize your expenses

In many cases, what generates indebtedness is the lack of a budget. In effect, this makes any unforeseen financial situation even more destructive.

So, to form a debt elimination plan to protect you from future debt, you must set up your budget. For this, you can start organizing your expenses into large groups. Below, we cite some examples:

  • Rent/Mortgage;
  • Public services (water, energy, and others);
  • Groceries;
  • Gasoline and transport;
  • Dining out and leisure;
  • Specific expenses (clothing, appliances, and others);
  • Savings.

Next, you should analyze each category and define which ones you can save on. Also, it’s a good idea to create a monthly budget.

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Choose a debt elimination plan

After completing the previous steps, it’s time to choose your debt payment plan. In fact, most experts recommend that you choose between the “avalanche” or “snowball” method.

These are widely used because they are simple to understand and put into practice. In effect, you can start using them on your own:

Snowball method

This method recommends spending all your extra money to pay off your biggest debt. In the meantime, make the minimum payments on your other debts.

When your biggest debt is paid off, move on to the next one until you have your debts under control.

Avalanche method

In this one, you must first pay the bills with the highest interest rate. Meanwhile, on the other accounts, make the minimum payments.

As soon as you settle the account that generates the most interest, move on to the next one.

Celebrate every achievement with your debt elimination plan

happy man doing somersault
Step #4: Celebrate every debt paid. Source: Pixabay

As long as your debt elimination plan is in place, you will likely have to forgo many frivolous expenses that you were attached to.

In fact, this forced “financial re-education” can generate a lot of stress and frustration. Therefore, it is important that you follow your plan’s progress and celebrate each debt paid.

Thus, this will generate a very important stimulus for you to follow through with the planning until the end. In addition, you will be able to observe in practice that your effort is generating results.

As your debts decrease, you may see your credit score go up. Use this as one more stimulus to reach your goal.

Use your savings to pay off debt

For some people, this may not seem like a good idea. However, this can actually be a way to accelerate your debt elimination plan. After all, you will allocate more money to “plug the hole” in your debts.

Also, when you have debt with interest rates higher than savings, you are not increasing your equity; on the contrary.

In practice, the savings income is canceled out by its continued debt expansion. So it makes more sense to use those savings to solve the debt problem first.

Earn more money

Indeed, cutting and reducing costs is one of the main tasks of those who need to pay off debts. However, there is a limit.

You cannot cut costs excessively, or you will greatly reduce your quality of life and that of your family.

I’m sure you don’t want to become the person who counts the amount of shampoo you use in the shower, so it lasts longer and saves money. So, it’s important that you don’t just think about how to spend less.

Also, think about how to earn more. Getting a part-time job or providing services online can be a good way out. If you prefer, you can negotiate a raise with your boss at your current job.

Participating in government welfare programs can bring big benefits to your budget, which is a big help for those with bills to pay. To find out if you are eligible for any of these, check out our post below!

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About the author  /  José Gonçalo

I started reading about finance only to find better options than savings. Since then, I have never stopped studying finance, and I believe that writing about it is the best way to help individuals feel fulfilled and have a healthy financial life. Today, I balance finance and medical school studies.

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