There are many reasons people struggle with saving money. Many factors that we are sometimes are unaware of. In this article we will discuss some of these reasons. 11 reasons you are struggling to save money 1.Cost of living It would be an injustice to talk about saving money without acknowledging the cost of living. The inflation rate keeps rising which means prices are hiking while our income remains the same. High costs of living, such as housing, healthcare, and education, leave little room for saving after meeting essential needs. 2. You don't Budget (or stick to it) A budget is to your finances what water is to your body. You might survive a day or two without it but in a long term you will feel the effects. Without a clear budget, it's challenging to track income, expenses, and savings. Overspending becomes common, making it difficult to save 3. You live beyond your means Spending more than you earn will leave you with nothing to save. Spending more than w...
Paying off your debts is one of ways to achieve financial freedom according to personal finance gurus such as Dave Ramsey and Suze Orman.
To achieve financial freedom, your assets must exceed your liabilities. As such, paying debt gets you closer to the goal of financial freedom.
In this article we will explore ways in which you can repay debt faster and the methods you can use to repay it.
7 Effective ways to pay off debt fast
1. focus on one debt at a time
Focusing on one debt at a time will keep you motivated as you will see results faster. You do not ignore the other debts. You have to make minimum payments on all your debts and then put the leftover money towards one debt at a time.
2. Pay more than the minimum
Building on the previous point, you have to make more than the required/minimum payments to get out of debt faster. Paying only the required amounts means you will have to pay into a full term. Thus not paying off your debt faster.
3. Get on a budget
A budget is a plan on how your finances will be. Planning to pay off debt and actually putting it on budget is a way to go.
As the saying goes "failure to plan is a plan to fail". You have to make a strategic plan on how you will tackle your debts, especially when you have more than one. And then stick to it.
4. Build an emergency fund
You are more likely to focus on paying off your debt when you know that should the worst happen, you are covered.
An emergency fund is money put aside for rainy days. It should be able to cover at least 6 months of your monthly expenses.
5. Live below your means
Living below your means will give you a wiggle room to put more money towards your debts.
It is pure mathematics that when you use less than you earn you will have leftover money. And that's what you need to pay off your debt faster.
6. Generate extra income
Another effective way of paying your debt faster is to create another stream of income. It is no secret that some of us earn way less than our minimum monthly expenses.
Or that while some of us can cover their basic needs, they do not have leftover money to put towards savings or debt repayment. And with the increasing inflation with no salary increase, it is absolutely not surprising. But that's neither here or there.
Creating another stream of income will give you a chance at leveling the field. It will give you a room to pay off your debt and build your investment profile. Thus giving you financial freedom.
You can choose a side hustle that suits your expertise and schedule. The good thing to come out of the Covid-19 pandemic is the increased access to remote work.
7. Stop using credit cards
Using credit cards will rack up your debt. It will keep you in debt. Most credit cards have high interest rates and if not used carefully, will keep you in debt for a long time.
Debt repayment methods/strategies
1. Debt Tsunami
Personal finance is more than mathematics. The debt Tsunami method focuses on the emotional impact of the debt. In this method, you rank your debts according to the emotional tall they have on you.
You then pay off the most stressful one and make minimum payments on the other debts.
You focus on the emotionally taxing debt and then move to the next one.
2. Debt Snowball
With debt Snowball, you pay your debts from the smallest to largest. You need to list your debts in order of the smallest to largest and pay them in that order, regardless of the interests.
You have to continue with minimum payments on the other debts.
It is psychology. Seeing the results fast keeps most people motivated. It is proven more people finish paying off their debts when using the snowball method as compared to other methods.
Pros:
+Motivating
Cons:
+Takes longer to pay off debt
+More total interest paid
You pay debt with the highest interest rate in this method. You have to list your debts according to the interest rates and start by tackling the one with highest interest.
It is the most mathematically efficient method. And will reduce the repayment period.
It will take time to notice the results and requires most patience and discipline.
Benefits:
+Get out of debt faster
+Pay less total interest
+Good for budget-oriented individuals
Cons:
+Doesn't take emotions into account
Remember you can use a blend of these methods to suit your needs. For example, you can use the tsunami debt repayment to focus on one debt then move to debt Snowball for debts below a certain amount then move to Avalanche.
Choose what works for you. The aim is to be debt free. And to get there in any way possible.