23 Oct How To Be Debt Free In One Year
3 Reasons Why You Keep Needing Payday Loans
Debts are not bottles of wine. It’s not that the older it gets, the better it tastes! To be very realistic, the more you delay and buy time in paying them off, the worse it gets!
But again, you should have patience! Read the debts you have. Scan the numbers. Prioritize your debts and clear them out one by one.
Since you are aiming to be debt free in 1 year, let me remind you, that this is going to be challenging!
Not to frighten you much, but the faster you want to get rid of debts, more are the sacrifices you have to make!
So, without any further delay, let’s see how you can clear your debts in a year’s time! Remember you want it fast!
Get a hang of your income and savings:
You can never kill debts with an unstable income, at least not in such a little time.
So, your income will define how fast you are going to clear those giant numbers!
People with good savings in hand are always one step ahead than those who have just started to gather pennies. In what group do you fall?
Without the help of savings, you just can’t fight the Debt devil!
Along with savings, figure out how much of your income you will dedicate for paying your debts.
Start living on a budget and practice a frugal lifestyle:
Your lifestyle should be downsized quite a bit!
Keeping it simple, follow a budget! You can definitely go for a 50-20-30 budgeting strategy.
Do your overall spending and paying bills within 50% of your income.
Punch 20% of your salary straightaway to savings.
The remaining 30% is for luxury expenses. But in your case, forget luxury. Start accumulating this 30% for your debt payments!
Moreover, try not to live a reckless lifestyle. For such lifestyle may force you to go for payday loans and increase debts in your life.
I am listing down steps to maintain a frugal life:
- Cut down frequent eating outs.
- Try to take advantage of public transportation as much as possible.
- Try to earn extra cash whenever possible.
- No vacations in this year!
- Avoid using credit cards and taking out payday loans. You don’t want to gather some more debt.
- Live a healthy life. Eat healthy and think healthy. You seriously don’t want to fall ill or land into an accident, which will bring in medical debts!
Have you thought of the backward budgeting?
In this type of strategy, you prioritize your debt payments and savings first. That’s the art.
You first set aside a certain amount of your salary for paying off your debts. Say if your monthly take away is $4K, then you set aside a perfect $1000 for your debt payments, and regulate the spending with the leftover amount of $3K.
This is called backward budgeting as you are utilizing your income the reverse way. Instead of giving ‘spending’ the first priority and then doing the ‘savings’, you do the vice versa. But for you, the first priority is clearing debts.
How to maneuver your debts:
For any secured loans (mortgage, auto, etc):
Let’s take the example of a mortgage loan. Your house is at risk unless you build 100% equity in your property, and clear the loan outright.
However, you might have to pay prepayment penalty if you repay the loan fast. So, make the monthly payments on time, be current on the loan, and don’t worry about clearing it fast.
Talk to your lenders, and go for a loan modification if required.
If you can get other loan options that offer a lower interest rate than your current loan, then you can go for refinancing.
With lower payments on secured debts like mortgage or auto loans, you can dedicate more money towards your credit card debts or student loan debts, or any other unsecured loans!
For credit cards and payday loans:
The first thing you have to do in clearing out these debts is not incurring any more of it.
So, here are the steps you need to take:
- Stop using your credit cards at once, and try not to take out any payday loan.
- Use the balance transfer method to get all your credit card balances into one account, for a lower interest rate! Usually, the new card will have lower interest charges in the introductory period, which is your perk!
- You can try out the debt snowball method, where you arrange your debts from lowest outstanding balance to the highest, and make extra payment on the lowest debt.
You can also go for debt avalanche, where you arrange your debts from the highest to lowest interest rates. First, repay the card that has the highest rate, and keep clearing outstanding balances, one by one.
If you wish then you can target 2 debts at the same time by opting for snowball or avalanche method.
- Take help of online calculators to figure out the monthly payments requiredto repay your debts in 1 year.
- If required, take out a HELOC or do a cash-out refinance if your income and savings can’t tackle your debts!
- Another deadly step is breaking your built-in cash value of whole life insurance! But to keep in mind, once you do this, your beneficiaries won’t get much from the policy in times of need!
I can never guarantee you that you will be debt free in one year. That’s so very hypothetical!
But, if you follow all these methods you have read till now, I can assure you, your debt payment journey will be very fast and headache free!
More tips to wipe out debts:
- Always check out whether or not the statute of limitations has passed for the debts you want to pay off!
- Talk to a financial counselor or an attorney if you want to file bankruptcy. This will be a big decision to go for!
- You can try debt consolidation by getting in touch with a consolidation company.
- You can even go for debt settlement, but you need to negotiate with your lenders. So, you take help of a settlement company for complete professional help.
- Have a talk with your insurer before clearing medical debts. They can negotiate with the medical institutions to lower your debts.
Author Bio: Andy is a contributor at Oak View Law Group and contributes specifically on personal finance topics. You can also find him fielding queries based on money management topics on various online communities and social media platforms.