Bebe Akinboade
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HOW TO CREATE A DEBT- FREE LIFE

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It can be stressful to be in debt and may seem as though there is no end in sight. Most people don’t know what it’s like to be debt-free; these days, in most developed countries, credit cards and personal loans are too easy to obtain, so it can be so enticing to buy something now and pay later! Living a debt-free life can be a difficult dream, but it is also possible and worth working toward. Learning how to handle your money may require some experience, commitment, and determination.

However, the financial freedom that comes with being debt-free will make your hard work worth it. It is also crucial that good financial habits are developed when debt is paid off. That way, once you achieve debt freedom, you can stay out of debt!  In this article, BEBE AFRIKANA presents to you 12 steps to becoming debt-free and also put you back on the track towards your financial freedom.

 12 STEPS TO BECOMING DEBT-FREE

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RECOGNIZE AND ACCEPT YOUR DEBT- GET ORGANISED
It’s better to acknowledge them when you realise you have financial arrears than turning a blind eye. You need to draw up a list of all the debt you have. This must include the Creditor, the Balance, the interest rate, the minimum repayment, and term of the loan! Having a consolidated list of all your debt obligations on one page is important to help you to make a financial plan to help you pay off your debt as quickly as possible. This list would help you to track accurately how much you have paid, the balances available and the debts you have settled.

READ ALSO 6 IMPORTANT MINDSETS YOU NEED TO SUCCEED

BE CONSISTENT AND MOTIVATED
Do not be discouraged because of the size of your debt but instead concentrate on getting them paid in time. You should not be angry at yourself for incurring the debt because it would not change anything; it will just make you frustrated and potentially unmotivated. Motivate yourself to work hard, and do so regularly to achieve the financial freedom these debts stole from you. Also, applaud yourself as you clear a debtor off the list.

CREATE A TIMELINE 
Some of your payments may have a deadline, while some would just increase over time. Giving yourself an estimation of how much time you would like to use to settle your debts allows you to start putting your plans into action immediately.

CREATE A BUDGET
You need a budget! You need to create a budget and stick to it. You would probably want to be able to settle your debts as soon as possible, but doing so in the wrong way might cause more problems than solutions. If you are in debt, you don’t want to be caught off guard by unexpected expenses. Therefore, you should create a budget to ensure this doesn’t happen. Doing this will help you schedule your spending so you can make required down payments to your debtors in a proactive way. First, you need to determine the type of budgeting that would work best for you eg mobile app, excel, or paper-based.   Secondly, you need to go through your budget and add all your income and expenses.  You need to keep track of all your bills through your monthly statements. You must have an accurate budget.
 
MAKE A DEBT ESCAPE PLAN
Making a plan gives you direction and helps you understand exactly where you are financially. You need to create a debt payment plan if you want to become debt-free. You will need to:

  • First, you should list your debts according to the interest rate
  • Work out how much money you have coming in each month. Include your regular wages as well as any benefits, child maintenance, or any other income you receive.
  • Work out all of your outgoings, including ‘essentials’ such as your mortgage, outstanding debts, and food as well as more ‘luxury’ spending.
  • Figure out all of your outgoings including ‘important’ items such
  • as your mortgage, unpaid loans, and food and more ‘luxury’ expenses.
  • Be realistic about these figures. Work to a ‘worst-case scenario’ where you balance the lowest possible amount of income you’re likely to have coming in against the largest outgoing you are likely to have.
  • Identify how much money you have available to pay off your debts and where you can cut back and make savings on your current spending.

Depending on the amount of debt that you have, you may need to focus on paying off your debts in a year or two.  If you have a large amount of debt, its good to break down the plan so you’ve got targets that you meet  along the way.

CUT BACK ON SPENDING
The first step in managing your debt is to start spending less. Once you have created a budget, you will be able to recognize where you are over-spending money and which things you should cut back on. Keep a spending diary or write a budget to open your eyes as to where you are constantly overspending. Then cut back on these and then put this money directly onto debt!
Tr some few changes like:

  • Taking a packed lunch to work instead of buying food every day
  • Use public transport rather than taking a taxi or Uber ride
  • Going for a run or bike ride instead of paying for an expensive gym membership

DON’T BORROW MORE
If you are trying to be debt-free, you mustn’t get into more debt. You need to make sure that you don’t buy anything else on Credit!

MAKE ADDITIONAL MONEY – SIDE HUSTLE
There are countless opportunities to make extra cash these days! Search around the house to see if there is anything that you can sell to make some extra cash which can be used to settle some of your debts. The sale of unwanted items may be a great way to make extra money. Alternatively, think about starting a side hustle! Think about your skill and what you can offer to make some extra cash. These are some of the options you can try :

  • Graphic Design
  • Photography
  • Proof-reading
  • Uber Driving
  • Teach English
  • Tailoring
  • Tutoring
  • Freelancing

PAY THE HIGHEST INTEREST LOAN FIRST

There are two methods of debt repayment, the snowball method, and the avalanche method. I am a huge fan of the avalanche method! (Unless you are only a few payments off repaying one loan – then pay that loan off, then you can allocate the minimum repayments for this loan to a different loan). It is always necessary to pay down high interest-rate debt first, but maybe even so during an economic downturn. This is because those debt payments prevent you from allocating more to your savings, investments, or other emergency funds every month.

MAKE LUMP SUM REPAYMENTS
When you get some extra money from selling household products, side hustle, or tax return, pay that money directly into your debt! By paying this money into your debt, you save more money on interest than by placing the money into a savings account. By making additional lump repayments off your debt, you will not only save interest money but also reduce your loan term.
 
EMERGENCY FUND
You need to make sure that you have some money set aside for an emergency. That way if something does happen you won’t have to be reliant on your Credit Card!

COMMIT TO STAYING DEBT FREE
Once you have become debt-free, you need to commit to not go into debt again. It means planning and saving money for bigger purchases. It means sticking to a  budget, so it’s worth it all to be debt-free. It is important to remember that freedom that comes with living debt-free. Don’t let all the effort you took to be debt-free go to waste by taking on extra debt. An emergency fund can help you stay out of debt, but your budget is the best tool you can use to stay out of debt.

 

 

 

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