According to CNBC, over 60% of US residents, including 45% of high-income earners, live paycheck to paycheck.
Debt cripples their wealth-creation journey.
Bad debt keeps you stuck in a consumerism life cycle and keeps burying you further and further into financial ruin.
It eats at our paycheck, making it leaner and leaner. The worst happens if we purchase liabilities, which burn our pockets further.
Debt is leverage. A powerful wealth-creation tool that can catapult you to riches or swing you into the depths of financial ruin, misery, and despair.
How then will you navigate this landmine without blowing yourself up?
1. Acceptance
Like all good things, the first step is always acknowledging there is a problem.
This is a win, for it shows you’re self-aware and, at the very least, you keep tabs on your finances.
You can fool everyone else but yourself. It’s now a time to steer your life in a different direction.
Be brutally honest with yourself. Call a mess a mess and start your exodus.
2. Diagnose
What is causing your financial strain? Are you overspending on shopping?
Is unaffordable house rent hurting your pockets?
Are your kids schooling in ivy league colleges with exorbitant fees?
Or is it just your taste of fine things in life crippling you?
Asking the right questions and an honest financial assessment is your only savior.
Read your bank statements and have your money communicate to you about yourself.
What do you borrow the money for? There lies your problem and solution.
3. Stop Accruing More Debt
Now that we’ve identified what is causing your financial strain, it’s time to get it fixed.
Stop borrowing.
When you find out that you’re digging your own grave, you stop digging.
More debt only adds fire to the fuel, leaving you drained and depressed.
You need a new way of thinking to free yourself from this slavery.
Cut back on your groceries to save a few bucks. Take your kids to affordable schools. Public schools offer a cheaper option without compromising the quality of education.
4. Have Medical Insurance Cover
Many people are one illness away from financial disaster. We do not want health problems dragging us back into the debt cycle.
Therefore, get a suitable cover for yourself and your family. Keep fit and practice healthy living too.
Good health is the greatest asset you can offer to yourself.
5. Lifestyle Adjustments
In order to repay our debts, a temporal lifestyle change is inevitable.
It’s a moment of reflection and offering ourselves breathing room from our choking bills.
Move to a neighborhood with a lower cost of living. This will leave you with surplus cash to channel toward debt repayment.
Sell stuff you don’t need. Declutter your house and use the proceedings to chop off your debt. This will get you started on your life transformation journey.
6. Have A Debt Repayment Plan
Everything gets better by plan. Devise a debt repayment plan and stick to it.
As Uncle Dave Ramsey puts it, adults devise a plan and stick to it, kids do what feels good.
You’re an adult. Do what needs to be done, not what feels good.
List all your debts, from smallest to largest. Make the minimum payment on all of them. Then channel all the surplus cash towards repaying the smallest first.
Once done, roll the amount over to the next debt till you are done.
This Debt repayment method is the debt snowball, and the small wins are helpful for your motivation.
Keep it rolling.
Once you’ve your debt repayment plan, play around with the numbers and see what would happen if you paid a couple of dollars more every month.
How little it takes to cut your repayment time by half will surprise you.
7. Supplement Your Income
Most people are in debt because of income problems.
There is a limit to how much you can cut back, but there is no limit to how much you can earn.
Therefore, work on the income side of the debt equation.
Earning more gives you a bigger shovel to bury your debt with. Get a second job or start a side hustle to supplement your income.
Scalable side hustles are ideal as they’ve got the potential to replace your current source of income.
8. Make Good Use of Debt
Debt is a sword that cuts with both edges. Respect it and it’ll be your partner. Misuse it and it’ll bury you in financial misery.
Borrow only to increase your productivity, which leads to increased income.
For example, borrow to buy a truck. Using it to farm on a large scale; then using the produce to repay your debt is a smart way to use debt.
In Conclusion
- Know what you owe.
- Cut back on your lifestyle.
- Make a debt repayment plan.
- Increase your income.
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