How to Pay Off Debt: 5 Tips to Help You Become Debt Free in 2023
4 min. read
By: FCU Team
If you’re tired of being told to skip your weekly latte in order to pay off your debt, we understand. You need actionable steps that produce real results when it comes to conquering your debt in 2023. Luckily, you’ve got financial experts in your corner to help make this dream a reality. We’ve seen it all, and we’re here to give you our top tips and tricks to becoming debt free in a way that is both achievable and realistic. Keep reading for five ways to beat debt and better your financial health in the new year.
Your Survival Guide to Navigating and Eliminating Debt This Year
Does it ever feel like you’re taking a test no one taught you how to study for when you try to figure out your finances? Well, we’re here to give you an insider look at the answer key to becoming debt free. You only get out what you put in, so do your future self a favor and commit to following this survival guide so you can rebuild your finances.
1. Build a Strategic Budget
The first step to figuring out your finances is always making a budget based on your income, monthly necessities and upcoming expenses as well as making an exhaustive list of all your debt. You should also include a buffer for how much you spend on nonessential items each month. While you will need to limit additional spending to achieve your goal, you also need to be realistic about your spending habits so you don’t tighten the reins to an unsustainable extent.
Once you’ve listed everything out, you’ll have a clearer picture of how much you owe, how much you have, and how much you can afford to spend on paying down your debt each month. You can also see if there are any unnecessary expenses or subscriptions you can cut to give yourself a bigger budget for paying off debt. Many people find it easier to budget using the 50/30/20 approach, meaning:
- 50% - The things you need
- 30% - The things you want
- 20% - The things you’re saving for and debts you’re repaying
2. Choose a Debt Payoff Strategy
After you figure out your budget and understand how much you have left after you pay for life’s necessities each month, you should adopt a debt payoff strategy that works for you. This typically falls into two categories: the Snowball Strategy or the Debt Avalanche. They include the following:
- Snowball Strategy: With this strategy, you pay off your smallest debts first, and once you pay those off your move to your next smallest debts, and so on and so forth. In theory, this will create momentum propelling you to continue paying off debts bigger and bigger, like a snowball gaining size as it rolls downhill. While you may not see as big of results initially, this could be a great tactic for those who are intimidated by their debt and feel like they don’t know where to start.
- Debt Avalanche: With this method, you pay off the debts with the highest interest rate, and then move to the debts with the next highest interest rate, all while making minimum payments on all other debts. This method helps limit the amount of interest you’re paying in the long run as to not build up more unnecessary debt throughout the year.
3. Consider a Debt Consolidation Loan
One of the most challenging parts of paying off your debt is the interest you accrue across multiple debts during the process. To avoid growing your debt in the process of paying it down, you can consolidate all your balances into one through a debt consolidation loan. This loan will be used to pay off all your debts at once and leave you with one place to pay toward and one interest fee to worry about. To qualify for one of these loans, you’ll typically need a fair credit score, which may be a challenge for those who have a poor credit payment history or credit utilization ratio. You’ll also want to ensure you aren’t building up additional debt while paying off your existing loan.
4. Make Extra Money with a Side Hustle
If your current budget isn’t cutting it when it comes to paying off your debt on your timeline, you can always seek ways to make a little extra money on the side. While there are only so many hours in the day, with companies like Door Dash and Uber, you can make more money on a schedule that works for you. You can also lean into your talents, such as graphic design or academic prowess to make a side hustle out of your main skillset.
5. To Get Out of Debt, You Have to Stop Growing It
The only way these steps will be helpful is if you stop accruing debt while trying to get yourself out of it. Make it a priority to never spend more on your credit card than you can afford to pay back each month. This way, you aren’t held back on your journey to being debt free by unnecessary spending. If you don’t know how to set these limits yourself or are having a difficult time making heads or tails of your finances, you can seek out financial counseling to get you on the right path.
Experience the Credit Union Difference
Bonus tip: Get a financial institution that is on your side. At Florida Credit Union, you can experience the benefits of a member owned and community proud credit union that is dedicated to bettering the financial health of all our members. With the right team, this can be the year you get out of debt and set yourself up for a brighter financial future.