Today’s post is brought to you by  Andy from After declaring bankruptcy, Andy and his family adapted to a new debt free lifestyle. Today he will be sharing these great tips on paying off debt and saving more cash in the process. Enjoy.- Dinero Pro

Every time you borrow money, you’re robbing your future self.”

 Nathan W. Morris

Achieving financial independence may seem to be an elusive dream. Your outstanding bills could eat up all the dollars that you’ve accumulated to date. You’re back to square one after footing some unplanned bills that crop up every now and then. Situations such as these mostly happen when you’re cash-strapped and are struggling to make ends meet.

So, if you’ve run deep into debt and want to win over your financial challenges to retire with a big fat paycheck, then you can’t afford to miss the following debt and money saving tips.

But, before you start working your way to debt free, answer this crucial question, first. 

How much debt do you owe?

To figure that out, work on the following process:

  1. Your balance sheet – Make a list of all your debts based on the rate of interest applied on them, from the bottom up. Once you’ve created a balance sheet, move onto the next step. 

  2. Your cash flow – Calculate all the liquid assets you own like savings, stocks, bonds, Certificate of Deposits, Health Savings Account (HSA) and so on. Having a sound a knowledge of your cash flow is a prerequisite to get out of debt. 

  3. Your expenses – Finally, note down all the major costs you expect to pay for the upcoming months. Deduct the amount from your total liquid assets. The remaining money is the amount you can afford to pay back your debts with. 

Fast-track steps: Get out of debt and save money

Here’s a strategy that should help you come of out of your debt crisis unscathed and save money successfully:

Cut back your debts – Once you’ve stopped incurring fresh debts, getting out of the debt hole will become a cakewalk for you. 

Try consolidating your debts – You may transfer all your outstanding balances to more affordable, low-rate credit cards. Credit being, a highly competitive market, you can expect to bargain and negotiate the interest rate of your choice. 

But, if you don’t transfer your cards’ balances, your present credit card company may oblige with a rate similar to that of their competitors. Make sure you have a clear understanding of the low rates offered to you, as many of them are “teaser rates”. These teaser rates stand valid for the first 6 – 12 months from the date when you have the cards. 

Take a lead in paying off costliest debt first – Stay light years away from the ‘minimum balance’ mousetrap. You need to make all-out effort to pay off the highest interest credit card debts first. Creditors make millions of dollars at the expense of borrowers who make only minimum monthly payments.

This is why they purposely set the minimum payment amount low to make larger profits out of the interest they receive from their borrowers for as long as possible. From now on, increase your payment amount by a few extra dollars and you could see your total outstanding loan balances dwindle in no time. 

Follow a practical debt repayment schedule – Your debt repayment plan will either emancipate you from your debt slavery or keep you entangled into the debt mess forever. So, it’s best to work with the experts while devising a get out of debt plan to pay off your loan balances in the best possible way, depending on your financial situation.

Financial independence doesn’t come from paying off your debts alone. Rather, you should have a dependable amount of financial cushion also to see you through during emergencies. Therefore, how do you save money while repaying your debts?

Tips to save money with minimal effort

Direct deposit – You have easy access to your paycheck and are having a field day controlling your reckless spending behavior, while your bank has refused to link your savings or checking account.

In that case, you could take advantage of a direct deposit made by your employer every month. Just ask about it from your employer. It will put the money away into your savings or checking account automatically.

Emergency Fund – You can build an emergency fund by having a part of your monthly paycheck deposited into a savings account to serve you as a financial cushion to pay for sudden, unplanned expenses. To that end, your emergency fund should have at least 3 months’ living expenses stashed into your savings account.

You’ll have to contribute 10% of your paycheck toward your savings to accomplish your target within 30 months. You may increase your monthly contributions whenever you like to accelerate the growth of your emergency fund. 

ATM card automation – Talk to your bank’s representative and apply to have your ATM card linked to your savings/checking account. You may create 3 separate savings accounts for separate missions.

Put a ‘cushion’ label for emergencies on one of your saving accounts. Similarly, label other accounts with names like ‘expenses’ or ‘investments’. Carry only one or two cards outside with you and use them only when you’re in dire need of them. Withdraw cash just once a week. This way you’ll minimize your impulsive purchases and boost your savings.

The bottom line to paying off debts and saving money is the willingness to sacrifice certain cravings to cover the costs of more important things.

Did you ever get trapped into debt? If yes, what was your strategy to become debt free? Share your experiences and comment below.

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