Debt holds you back from  achieving your financial dreams, like saving for retirement, owning a home or living the life you would want. It can make you anxious and stressed and also affects your mental health as you constantly worry about money and feel limited.

There is a way to get out of debt and these seven steps will help you regain control of your finances become debt-free for good.  

Here are seven steps to get out of debts for good;

1. Fully Understand Your Debts

To break free from debt and avoid falling back into it, you need to understand the habits that leads to the debt. You need to thoroughly go through your loan statements and bills, know why you obtained these loans on each occasion and how much you owe in total. Take note of how much it is each month and the interest rates on each debt.

You need to be sure your monthly debt payments and essential expenses are below your income. If you can’t cover your necessary bills, you may need to negotiate with lenders or find ways to increase your income.

2. Manage Your Spending

• Assess Your Current Spending:

To break free from debt you need to assess your current spending and ensure it is not above your income. This way you will not find yourself in more debts, rather, you would reduce your debts.

• Differentiate Between Needs and Wants

It is crucial you differentiate between your needs and wants. Needs are essential for survival and well being such as food, shelter and healthcare. Wants are non-essential items or activities that bring pleasure or convenience but are not necessary for survival.

Examples of necessities; Rent or mortgage payments, utilities (electricity, water, gas), groceries and essential household items, transportation costs (e.g., commuting to work)

Examples of unnecessary expenses: Dining out at restaurants, entertainment expenses (movies, concerts, amusement parks), subscriptions to streaming services or magazines, impulse purchases or luxury items.

3. Create A Repayment Plan

Create a repayment plan prioritizing debts with high interest rate. Do not add extra funds to any of your debts, consider which debt you intend to pay off first. Additionally you can explore other strategies to manage your debt, like reducing monthly payments or consolidating your debt.

Debt Repayment Strategies

There are several strategies to adopt in becoming debt free. These strategies could be;

i. Snowballing Method: In this strategy you tackle debts starting from the smallest and working you way up to the largest. “snowballing” was popularized by Dave Ramsey, because of it’s strategy of starting small and gradually growing, much like snowball down a hill.

How it works

You begin by making the minimum payment on each debt. Then, use any extra funds you have to pay off the debt with the smallest balance. This allows you to eliminate debts quickly and see immediate progress in your repayment journey.

Once the smallest debt is cleared, move on to the next one with the smallest balance while still making the minimum payment on your other debts. As you pay off each debt, you will have more money available to put towards the next one.

Repeat the process until you are debt free.

ii. Debt Stacking: Debt stacking emphasizes tackling debts based on their interest rates. The higher the interest rate, the more costly a debt can become over time. Paying off the debt within the highest interest rate first enables you to save the most money in the long term.

How it works

Ensure to start by making the minimum payment on each debts and then allocate any additional funds towards debts with highest interest rates. Once this debt is cleared, move on to the next one with the next highest interest rate while maintaining minimum payments on the others.

iii. Student Loan Modifications: Student loans allow for modification of your repayment adjusted according to your income or financial circumstances, especially if the loans are from the federal government. This adjustment or modification can reduce your monthly payments, giving you more breathing room to tackle other debts or strengthen your financial position. Once you’ve successfully cleared your debts you can begin making larger payment towards your student’s loan.

iv. Debt Consolidation: Debt consolidation is merging all your debts into one single debt even if your credit is less than perfect. This debt consolidation allows you to juggle multiple debts with just one single debt or payment schedule. It involves taking out a personal loan to pay off all your existing debts and then streamlining your payments into one manageable monthly instalment. It is important to pick a repayment strategy and stick to it by making your payment on time each month to avoid extra fees and interest charges.

4. Understand Your Credit History

It is important you look at your credit score and report to spot any errors. You can obtain reports from three major credit bureaus-Experian, Equifax, and Trans Union or visit annualcreditreport.com. Remember, you are entitled to a free credit report at least once a year.

With this report, you will see if you’ve missed payment frequently or have a high credit utilization ratio, Indicating you are using a big portion of the credit available to you.

5. Establish an Emergency Fund

While actively paying down your debt, it is crucial to set aside money in an emergency fund. You need to build a savings habit as it will help take you out of debt entirely. Having an emergency fund provides you with the flexibility to cover unexpected expenses, reducing the risk of falling back into debt in the future.

Always use high interest savings account or a money market account to ensure you emergency funds earn interest wile remaining easily accessible whenever needed.

6. Avoid Accumulating More Debt: Do not add to your debt while trying to pay off the other debts, this will hinder your progress and lead to accumulating more interest that you will struggle to manage.  You can always calculate how long it will take to become debt free using a debt repayment calculator. Keep in mind your debt-free timeline may cary based on the amount you are allocating toward debt repayment and whether you accrue additional debt. It is easier to stay focused on the ultimate goal or vision when you calculate your debt -free period and not add to your already existing debts.

7. Overcome Setbacks: Definitely there will be obstacles in your journey to become debt free. However, you should be firm with your decision and reassess you budget to ensure you are not relying on credit cards or taking out personal loans to address issues.

Allocate an amount you can pay to offset your debt while keep aside money for your monthly expenses.

Conclusion

Becoming debt-free is a personal decision to make and it comes with lots of obstacles, you have to be firm and strategic about it. Debts causes a whole lot anxiety, stress or even depression. It is advisable you strategically plan to offset all debts.