How I Became Debt-Free with Effective Financial Planning

Becoming debt-free is a goal for many but not everyone knows how to achieve this financial goal. While there are a lot of helpful articles online, most of them simply talk about spending less or working more and that is not something that can be easy to pull off for a lot of people. I am writing this article from personal experience and hope that this will help some people who are in the same predicament that I was with their financial planning to get out of debt. 

Get Out of Debt in A Year

You see, a few years ago, I had some financial hardship because of some banking and work-related issues. My account was compromised (this is worth another post), my dog got sick, and I lost a lot of clients (I work freelance). Before I knew it, I was in debt and couldn’t afford to keep the same lifestyle. I started accruing credit card debt and more even when I was religiously making payments every month. It only took a few months for me to spiral deeper into debt to the point that no matter how much I saved and paid, I was hardly making a dent on the interest alone. 

That was when I realized that just working hard and spending less is not helping me get out of debt. I needed to take action and start effective financial planning, or I will be in deep trouble. What worked for me was a combination of debt consolidation, debt management, and debt reduction. It only took me a year of effective financial planning to get out of debt using these 3; so, how do they work?

Become Debt-Free with Debt Consolidation

Debt consolidation is the process of converting several high-interest debts into just one that comes with a lower interest rate. Essentially, you take a loan that covers all your existing debts so that your debt consolidation loan will pay for the smaller debts that you have. 

In my case, I had a few credit card debts that I was paying huge interest and penalties on. I checked the available debt consolidation options from several banks and lenders and found a bank that allowed me to convert my existing credit card debts into one. That bank consolidated my debt by paying for my existing credit cards, and in turn, I had to pay them back. It worked because their interest rate is only a small fraction of what I was previously paying and allowed me to pay more and more of my principal until I became debt-free.

Become Debt-Free with Debt Management

Debt management is a process that helps you manage your debt so that you can pay it off easier. Luckily for me, the bank that I got my debt consolidation loan from also offered debt management and counseling as part of the deal. I guess it was their way of making sure that they set up things to ensure that I will be able to pay them back. Depending on where you are, debt management services can be offered by firms, banks, consulting companies, or non-profit organizations. I was just lucky that it was a service that was built in with my debt consolidation loan because I didn’t even know that it existed. 

Become Debt-Free with Debt Reduction

Debt reduction means using techniques and tools that help you manage your money, plan payments, and basically just to have a debt payback plan that you can stick to. Frugal living helped as well as setting a budget. Investopedia has a good article on the 50-30-20 budget rule which is similar to the one I used to get out of debt. I also made a 10-step strategy to get out of debt similar to some of the steps described in this debt reduction article on Forbes. My favorite is having a side hustle. I monetized my hobbies (such as writing and content creation) and started making good money doing the things I love. I also began selling things that I no longer instead of hoarding them. This alone paid off about a third of my debt consolidation loan. It was truly empowering and gave me the extra motivation boost I needed to get out of debt in just a year. 

To date, I've shared these tips with some of my friends who faced financial difficulties in 2020 and they're mostly out of debt now. At the very least, start with debt consolidation to get out of debt. You can learn more about debt consolidation with some helpful resources online and take it from there. You got this! Cheers to a debt-free life!

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