Everyone at one point or another gets a reality check that makes it clear that you’ve been a bit too free and careless with your finances …and it’s time to make a change. Debt is not necessarily a bad thing, but you want good debt, not bad. If that sounds familiar and you’re looking for a way to be a bit more responsible with your finances, here are 6 steps that can get you out of bad debt and into good debt:
- Make Minimum Payments and Save Up a Small Emergency Fund – This can be anywhere from $500 to $100 dollars, whatever makes sense to you so you can feel a bit more secure financially in case any small, unexpected expenses come up. It’s amazing how this little bit of savings can keep you from using your credit card for dental emergencies or a blown-out tire.
- Find a Side Hustle – This can be anything that will make you a bit of extra money on the side that you are able to put towards your debt. Start a Zumba class, sell crocheted blankets on Etsy, get a part time job at Starbucks…anything that can get you a bit of extra revenue.
- Debt Snowball – This is a pretty popular way to get out of debt and you probably have heard about it before…but if not, here’s a quick synopsis: Rank your debts from lowest to highest, make minimum payments on all of them, but use that extra money from your side hustle to pay off extra on the lowest amount. Once that debt is paid off, take the amount you were using to pay off the lowest amount of debt, including the minimum payment and put it towards the next lowest amount. It’s amazing how quickly you can get rid of a puzzle of credit cards and small loans.
- Save Up a Larger Emergency Fund – Once you have paid off all your bad debt (credit cards, high interest loans etc.) using the snowball method, save up a more significant emergency fund. You can do it, too! Look at all the income you just freed up! Give yourself an even larger cushion and leave it for a rainy day.
- Keep Your Credit Cards – I know this may seem counter intuitive, but don’t cut up those cards. Keep using them and use them responsibly. This will build up your credit history and allow you to succeed in any future investments.
- Get into Good Debt – ‘Good Debt’ may seem like an oxymoron, but it can be one of the largest steps towards long-term financial freedom. Good debt is defined as an investment that will grow in value or generate long-term income. Things like student loans are considered good debt because an education increases your value as an employee and raises your potential for income. Mortgage payments are considered good debt because in most cases the house will appreciate in value. Use this newfound financial freedom to get into Good Debt. Buy a rental property or real estate, or take some online classes to upgrade your education. Take the money and invest in YOU.