How You Can Become Debt Free (And Even Get a Fresh Financial Start)

This post was written for Play Louder by a contributing author. Please note that contributing opinions and claims are that of the author. They are not always in strict alignment with my own opinions. – Joe

Being overwhelmed by debt can be stressful, frustrating, and even detrimental to your mental and overall health. If you’re watching your debts pile up month after month, you may need to take matters into your own hands to find a solution to get rid of them and become debt free.

How You Can Become Debt Free

Of course, becoming debt free is much easier said than done. It may take a lot of hard work and effort to reach this goal, and you may have to make many tough decisions along the way.

But if you are truly determined to get out of debt and regain control of your financial life, here, you will learn about some tried-and-true methods that could help you make this dream a reality.

Stop taking on more debt!

The first step you should take to eliminate your current debt is not to add more debt. It may sound obvious, but it can be much more complex than you might think.

Much of the American economy is based on credit. In 2021, American household debt hit a staggering record high of $14.6 trillion. We are giving away our financial freedom in exchange for more debt and headaches.

Now, you may have become accustomed to living your daily life using credit and taking on debt. But if you want to regain your financial freedom, you’ll have to get away from that system and learn how to go about your finances in a completely different way.

Track your spending

The next thing you should do is start tracking your spending. What are you doing with your paycheck? Where is your money going? Why can’t you afford anything anymore?

All these questions can be easily answered if you manage to get a clear view of your financial situation. Plus, it will be easier for you to create a monthly budget since you will know how much money you have.

There are several methods you can use to track your money:

·   Use software like Quicken, Mint, YNAB, Countabout or Money Dance.

·   Or at least a Phone app that allow you to see your finances at a glance and set spending limits.

·   Regularly checking your statements and receipts.

·   Writing your expenses in a notebook. (though I don’t really recommend this one)

Find a strategy that works for you so you can understand where your money is going at all times.

Create a budget and stick to it

If you want to get debt free it is of utmost importance that you learn to create a monthly budget and stick to it at all costs. You can use your regular expenses as a guide, and you must take into account your most essential needs.

For your budget to be adequate, you will have to cut costs strategically. By tracking your finances, you may detect many things you are wasting money on or spending too much. Now you’ll be able to make the necessary adjustments without dramatically affecting your lifestyle.

Be sure to write down your budget. It’s not enough to have it in your mind; you must keep track of it in a notebook or on a budget sheet so you can hold yourself accountable.

Increase your income

As you can imagine, earning more money could help you pay off your debts. It might sound silly, but for some people, this may be the best way to get the extra money they need to regain control of their financial situation.

If you have the time, looking for another job or working a side gig can help you increase your cash flow. Platforms like TaskRabbit, Upwork, and Workana can be beneficial for doing this.

However, if your primary job is full-time, you could try asking for a promotion to earn some extra cash. It may not work out, but it’s worth a try.

Sell some stuff you don’t need

Many of us tend to accumulate things we don’t need. Maybe you have an old TV stashed away somewhere, clothes you no longer wear, and even old books.

Instead of throwing those things away, consider having a garage sale and getting some cash for them. You may end up getting more money than you expect. After all, “one man’s trash is another man’s treasure.”

Alternatively, you could also sell some stuff on eBay or Facebook Marketplace. You’ll be surprised how many people you’ll be able to reach through these platforms.

Bankruptcy

Many people think bankruptcy will doom their finances for life, but this is necessarily true. If nothing else works or your debts are too overwhelming, bankruptcy may be your way to becoming debt free. Bankruptcy could help you get a fresh start so you can rebuild your finances from scratch.

It’s a lot more common than you might realize. In 2019, more than 700,000 people filed for bankruptcy in the United States. It’s not a financial defeat; it’s simply a legal alternative to start over.

Now, if you are considering filing bankruptcy to get rid of your debts, you should keep in mind that there are different bankruptcy options for various financial situations.

The two most common bankruptcy chapters are Chapter 7 and Chapter 13. Below, you will learn some essential information about them, but if you want to know which is the best option for your case, you should consult with a bankruptcy lawyer in your state.

Chapter 7 bankruptcy

Chapter 7 bankruptcy is a good option if you want to get rid of most of your debts as quickly as possible and don’t mind having to sell some of your assets to do so.

To file for this Chapter, you will first have to qualify through a means test that will measure your household income against the state median. If your income is below the average, you will automatically be eligible.

Then, a bankruptcy trustee will manage your non-exempt assets. Their job will be to sell them and distribute the money among your creditors.

After a few months, the court will issue a discharge that will wipe out most of your unsecured debts, including medical bills, credit card debt, and even personal loans. From then on, you can start rebuilding your credit and your financial life.

Now, you should know that most Chapter 7 bankruptcy filings qualify as “no-asset cases.” This means that the filer won’t lose any assets but will receive the debt discharge anyway.

Chapter 13 bankruptcy

Now, if you don’t qualify for Chapter 7 bankruptcy or don’t want to risk losing any of your assets, you can opt to file for Chapter 13 bankruptcy instead.

In this case, you will need to create a repayment plan with the help of your bankruptcy attorney to repay your debts over 3 to 5 years. Once you complete the plan, your remaining debts will be discharged.

Keep in mind that fulfilling the repayment plan will be very complicated, and you may need the help of a legal professional to accomplish it.

Conclusion

Although debt can be overwhelming, you must remember that it is up to you to regain control of your finances. You must find the solution that works best for you and stick with it until you are debt free. If you need help, don’t hesitate to talk to an attorney, counselor, or other qualified professional to understand what you should do to get a fresh start.

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