Nov 16, 2017

Getting Out of Debt: 6 Steps Toward Financial Independence

By Byron Ellis

Once you are in debt, it can seem impossible to find your way out. Having unpaid debt also causes an enormous amount of stress and anxiety that can have an effect on your overall health and well-being.

While it may not be easy to get out of debt, it is possible. Even on a limited budget, there are ways to navigate your way back to a debt-free life. Consider the following steps below:

Step #1: Make a Promise to Yourself

Consider making a promise to yourself that you will not acquire any new debts.

Getting out of debt usually requires making some sacrifices along the way. But, you have to commit to living within your means and not spending more than you earn. Make a list of all of your current debts and total it up. Not adding anything to this number is absolutely crucial to help get out of debt..

Step #2: Stick to Your Monthly Payments

It's important to remember that getting out of debt is not a sprint, it's a marathon. Figure out exactly how much you can afford to pay off each month and stick to it.

Even if you can only afford a small monthly payment, paying something is better than paying nothing. And, chipping away at your debt with consistent effort adds up to big results. Don't get discouraged if it takes a while to see the light at the end of the tunnel. Stay dedicated to paying a certain amount each month, and you may be debt-free before you know it!

Step #3: Rank Your Debt

When organizing your debt, rank it in two ways: lowest to highest balance and highest to lowest interest rate.

Compartmentalizing your debt according to balance and interest rate will allow you to create a plan of action for tackling your debt. These lists will help you figure out what should be paid first to avoid accumulating interest and how long it will take you to completely pay off each debt according to your monthly payment schedule.

Step #4: Clear Your Small Debts

Consider paying off the debts with the smallest balances first. Paying these debts off can give you some momentum towards being debt-free. Send extra payments only to those debts that can be paid in three months or less while paying the minimum on everything else. You may find yourself getting rid of several small bills early. These small successes can help you stay focused on paying off your larger debts.

Step #5: Attack Large Debts

The second list you make should include any debt that will take longer than three months to pay off. But, don't worry: now that you have experienced success when crossing off your smaller debts, the bills on this list will seem much more achievable.

Don't let expensive debts stand in your way of financial independence. Once again, consider paying only minimum payments to everything except the bill with the highest interest rate. Stick to your plan and watch as your debt gets smaller and smaller every month. With consistent effort and serious commitment, you may be debt free much sooner than you may think.

Step #6: Celebrate!

Digging your way out of debt is a huge accomplishment. Now, it's time to celebrate and enjoy the peace of mind and freedom of being free of debt!

United Capital Financial Advisers, LLC (“United Capital”), is an affiliate of Goldman Sachs & Co. LLC and subsidiaries of the Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management and financial services organization. Investing involves risk and clients should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. The information contained herein is intended for information only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. United Capital does not provide legal, tax or accounting advice. Clients should obtain their own independent legal, tax or accounting advice based on their particular circumstances.

United Capital Financial Advisers, LLC (“United Capital”), is an affiliate of Goldman Sachs & Co. LLC and subsidiaries of the Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management and financial services organization. Investing involves risk and clients should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions.

The information contained in this blog is intended for information only, is not a recommendation, and should not be considered investment advice. Please contact your financial adviser with questions about your specific needs and circumstances. This blog is a sponsored blog created or supported by United Capital and its employees, organization or group of organizations. This blog does not accept any form of advertising, sponsorship, or paid insertions. Certain authors of our blog posts may be influenced by their background, occupation, religion, political affiliation or experience. It is important to note that the views and opinions expressed on this blog are that of the owner, and not necessarily United Capital Financial Advisers. As a Registered Investment Adviser, United Capital does not allow any testimonials on their blog, and any comments deemed as such United Capital will remove.

United Capital does not offer tax, legal, or accounting advice; therefore all articles should not be taken as such. Readers should obtain their own independent legal, tax or accounting advice based on their particular circumstances. All referenced entities in this site are separate and unrelated to United Capital. Any references to any specific commercial product, process, or service, or the use of any trade, firm or corporation name is for the information and convenience of the public, and does not constitute endorsement, recommendation, or favoring by United Capital.