Chances are you’re in debt. Statistically, if you’re an average American, you’re in $90,000 of debt.
There are ways to chip away at your debt. One crucial way is to develop healthy financial habits. These habits include spending within your means, not exceeding your credit limit, not relying on too many credit cards, and not eating out when you could easily eat at home.
In addition to cultivating healthy financial habits, you can use more comprehensive debt repayment strategies to refinance your debt. If you’re eligible for a debt consolidation program offered by a non-profit credit counseling agency, for instance, a certified Credit Counsellor may negotiate with your creditors on your behalf to consolidate two or more of your unsecured debt into one monthly payment that you pay each month at a set interest rate.
The goal is to achieve financial freedom, meaning freedom from debt.
Here are three smart ways to pay off your debt and achieve financial freedom.
#1 Understand Your Financial Goals
If you’re interested in achieving freedom from debt, the first step is to identify your financial goals.
What are your financial goals? They depend on your situation.
Let’s say you’re over thirty and hoping to pay off your credit card debt, personal loans, medical bills, and other unsecured debt. Your situation is quite different from that of a twenty-three-year-old right out of college whose primary concern is to pay off their student loans while still having enough money to make rent.
Once you understand your financial situation, you can identify realistic financial goals, like where you want to be in 5, 10, and 20 years.
#2 Develop Healthier Financial Habits
To reach your financial goals, you need to change the financial habits that prevent you from achieving them.
Developing healthy financial habits means changing your automatic and largely unconscious behavior with money.
The best way to do this is to change your behavior with money in incremental, realistic ways, until your healthy behaviors become automatic.
Trying to change your behavior with money right away is a recipe for failure. If you try to stop using credit entirely, for instance, you’re setting the bar too high. A more viable strategy would be to reduce the amount of credit you use each month gradually.
Our habits are deeply ingrained within us, and it’s easier to wean off them slowly than quit cold turkey.
Think about it: are people really going to eliminate processed sugar from their diet immediately? Sure, it’s possible, but it isn’t very certain. The most realistic way for someone to eliminate processed sugar from their diet is to slowly reduce their intake day by day, week by week, by replacing it with healthier alternatives.
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When cultivating healthier habits, the tortoise wins the race.
#3 Choose the Debt Repayment Strategy that Works for You
In addition to achieving your financial goals by cultivating healthy financial habits, you can use other debt payment strategies that streamline the debt repayment process.
These strategies include taking out debt consolidation loans or enrolling in a debt repayment program with a non-profit credit counseling agency. Both streamline the debt repayment process by consolidating (combining) your multiple unsecured debts into one lower monthly payment.
By identifying your financial goals and smartly combining healthy financial habits with the right debt repayment strategy for you, you can facilitate the process of paying off your debt so that one day—perhaps not too far away—you’ll be debt-free.