Time To Live Debt-Free – How To Pay Off Debts
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Living a debt-free life is a dream for many people.
However, there are some who believe this to be a pipe dream.
Some people we speak to don’t fully believe they can be debt-free.
In fact, some have even said to us it’s not realistic to live a debt-free lifestyle.
The sad part is that they had absolute conviction that this was their truth.
But it doesn’t have to be.
If you’re in debt we want to encourage you to aspire to lead a debt-free life.
Let’s dive into it.
Table of Contents
Good Debt vs Bad Debt
There are many opinions on what makes debt good or bad.
Good debt can mean debt that you took on to enhance your life and your future.
Some say good debt is debt you take on after careful calculation of whether you can afford it.
Others say good debt is debt with low interest charged.
Therefore, good debt is things such as mortgages, student loans or car finance.
On the other hand, most say bad debt is one taken solely for frivolous spending.
Plus, any debts with high-interest rates are considered bad debt.
Therefore bad debt is largely connected to credit cards and store cards.
No matter where your debt sits on the good debt vs bad scale one thing is for certain.
Debt is debt.
In this post, we’re mainly referring to consumer debts such as credit cards, buy-now-pay-later and other financing deals.
How Does Debt Affect Your Life
Debt can be a double-edged sword.
It affects your money and your life.
Debt takes money from you to give it to your lender.
This robs you of the power to be financially independent.
But it goes much deeper than this.
Debts can cause anxiety, stress and shame.
We think of this as the unseen interest charged on your debt that can get worse over time.
Struggling to get in control of your money and manage your finances?
Are you looking for the right system to start being in the driver’s seat with your finances?
The Ultimate Money Plan Budgeting Spreadsheet is your answer. Check it out today!
Is It Realistic To Live A Debt-Free Lifestyle?
Ever bought a car and suddenly notice how many other people have the same car as you?
All of a sudden you notice the For Sale signs in your neighbourhood because you’re looking to buy a house.
Things you hadn’t even realised or seen before, right?
There’s no change in reality!
It’s just that you started noticing it more because you’ve tuned your mind to it.
This is the Baader-Meinhof Phenomenon in action.
You won’t be debt-free just because you’ve thought about it – sorry.
But you’ll start to notice things that you could change or do to become debt-free.
You may start to notice the information around you that informs you on how to be debt-free.
In essence, you need to have the right mindset to be debt-free.
You become debt-free by taking the right actions and actions are determined by your mindset!
Debt Snowball vs Debt Avalanche
The main action to take to be debt-free is to start paying off your debts.
These are the two most common strategies for paying off your debts.
Debt snowball vs debt avalanche.
Debt snowball is where you prioritise paying off debts with the least amount owed first.
You get to clear off your smaller debts fast with this method.
But it’ll take you longer to be debt-free because your larger debts will keep growing because of interest.
Debt avalanche is where you prioritise paying off debts with the largest interest rates first.
The benefits are that you will be debt-free much quicker by tackling more expensive debts.
But it may take you a while to repay your first debt, especially if it’s a large amount owed.
Either way, just pick one that sounds good for you and get started.
You can always change your strategy over time but it’s important you get started!
How to Live A Debt-Free Lifestyle
These are the things we did whilst we were paying off our debts.
Leave A Gap Between Income And Outgoings
Start by creating or reviewing your budget.
This is where you note your income and expenses per week or month.
The aim is the ensure you live on less than you make, leaving room to pay off your debts.
The expenses we’re talking about include household bills, food, transport, family care and personal care.
We don’t neglect shopping, eating out or even giving money.
But we do these within reason according to our income.
You may need to make adjustments to your spending habits to give you more money to spare.
The idea is to then direct your extra money towards paying your debts off.
Build A Financial Cushion
One of the common causes of debt is financial surprises and emergencies.
Having some money saved for these will help avoid going back into debt.
This is mainly an emergency fund but also includes insurance too.
Put some cushion in place to have a softer landing should surprises come up.
Planning ahead is how you really avoid debt in the long run. Usually.
Increase Your Income
Increasing your income could be a better option than reducing your expenses.
Especially if your expenses are quite tight already compared to your income.
Plus, it gives your more money to pay off your debts too.
Negotiate a pay rise or start applying for higher-paying roles in your field.
Or, you could start a side hustle to bring in more money.
Avoid Lifestyle Creep
Lifestyle creep is one of the traps of living in debt.
This is where you increase your expenses to match your increased income.
As you pay off your debts you’ll find yourself with more money.
The error some make is to start spending this money on other things.
There’s nothing wrong with this on the surface.
The danger is when this spending results in you having a more expensive lifestyle to maintain.
Which could lead you back in debt again.
Want to learn more? Check out our discussion on this!
Take Action
Check out our Ultimate Money Plan to get in control of your money and smash your financial goals.
Share this post with others so they can also learn about money too.
Let us know how you’re getting along by getting in touch with us, we’d love to hear from you.
Knowledge is powerless without action.
So take action, and take care.
Thando & Lindie