Debt. It weighs you down, takes a hold of you, and never lets you go. It strangles your freedom to think, move, and play. And it stops you from really living your dreams.
Lots of us struggle with debt. I’ve had my share of struggles along the way. I’ve never been a big spender and have always paid off my credit cards in full every month. But when my wife and I had our first daughter, it was hard to clearly figure out our wants from our needs. One thing that we needed was our own house, so I took out a loan from my mother for a portion of the down payment, and then took out a large mortgage to pay for the house. When our second daughter was born, we needed a new car, so I bought a brand new SUV, with a five year lease and over $700 per month payments.
With all of these purchases, the debt just kept building, and it seemed like my life would be an endless cycle of increasing my debt to fulfill my perceived needs. However, when we started traveling as a family, our goals changed so that creating our time wealth was our number one priority. One of the ways to create true time wealth was to completely eliminate our debt.
So one-by-one, I paid off all my debts. I repaid my mother’s loan in full. I sold my car almost three years after I purchased it brand new, thus paying off the car’s five year lease. As for my house and my mortgage, I rented out the house and had the rent payments cover all of my mortgage expenses, as well as taxes, insurance, and other fees.
Once I was able to release myself of the stranglehold of debt, I felt empowered with more control over my money. No longer did I have to pay off my debts first, and then use the leftover money for living. I could now save and spend the way I wanted to without having to think about any loans that needed to be paid. This lifestyle change from being engulfed in debt to completely debt-free was truly liberating for me. Being debt-free allowed me to start living my dreams, including taking a gap year of world travel with my family.
Here’s the 5 things that you can do to become debt-free:
- Increase income. The fastest way to make a significant dent in your debts is to increase your income. If you have a full-time job, try to get a promotion, raise, or bonus. Try to do some consulting, freelancing, and extra work on the side. Make extra money online through a small business (Etsy, Ebay, Amazon, etc.).
- Cut expenses. Live within your means by setting consumption budgets on everything you buy, including food, drinks, electronics, toys, books, and anything else. If you have trouble controlling your spending, try spending with only cash and no credit cards. You won’t be able to use what you don’t have in your wallet, so cut the expense before it ever happens.
- Make a plan. Set some goals on how you will eliminate your debt. Look at all your debts and figure out how much of your monthly budget you are going to allocate to paying off a portion of that debt. First, pay your monthly payments on your car loan(s), mortgage, and/or student loans. Then, pay off debts that have higher interest rates like credit cards. Finally, pay off any personal loans.
- Automate payments. The easiest way to pay off debt is through automation. Set a date and amount to pay off each month and don’t even think about it. The bank will do the work for you, as long as you have money in your bank to supplement the payments. Month-by-month and slowly, but surely, your debts will decrease and eventually will be paid in full.
- Automate savings. To get fully out of debt, you also need to create a contingency plan. That plan is called savings. Similar to how you automate your loan payments, automate your savings. Pay yourself first, then use the remaining money for what you deem necessary in life. With time and patience, the savings eventually will start to add up.
Once you take back control of your debt and start building savings, you’ll create the freedom in your life to pursue what’s most important, whether it is starting a family, starting your own business, working on a passion project, or traveling. What matters is that once you have control over your finances, you’ll be in control over how you live your life.
So start working on your debt, bit-by-bit, and eventually you’ll be free to live the life you’ve always dreamed of.