Do you want to settle debts at the earliest time possible? 61% of Americans plan to pay off their debts in 2020. But with the coronavirus and the recession happening at the same time, this may be harder to do. As you know, household finances are tight because of the economic effects brought about by these two events. People are taking in more debt as unemployment rates continue to rise. But even those who still have their jobs, they are still financially crippled. They’ll be hesitant to pay off their debts because they would want to focus on conserving their finances. They’ll need it to pay for their basic needs – in case another crisis starts.
When it comes to priorities, you can bet that Americans will not pay their debts first. Unless, of course, they can find a way to reduce their debts.
This is why it’s a good idea to settle debts. But you have to make sure that you know how to use it properly. Because the whole point of settling debts is to negotiate a debt reduction. That can affect your finances. It can get you out of debt, but you have to know what it means to succeed in settling your debts.
At the forefront of what you have to do is to implement lifestyle changes that will help you afford debt settlement no matter what your financial situation is.
Lifestyle changes that’ll make it easier to settle debts
If you want to settle debts in no time, you need to make changes to your lifestyle. Do you think you can handle that? It’s not impossible – and that’s what a lot of Americans realized when the pandemic hit. In one survey, more than half of their respondents said that they started saving more than what they usually did since the pandemic happened.
This is proof that if you put your mind to it, you can make the necessary sacrifices that will help you pay off your debts. And if you succeed in settling your debts, you may not have to get a huge amount of money to begin with.
But to help speed things along so you can enjoy debt freedom, here are lifestyle changes that you may want to consider implementing in your life.
Live below your means
Whether you are in debt, in a financial crisis, or going through financial abundance, it’s always a good idea to live below your means. What does this mean? It means your expenses are lower than your income. That way, once all your bills are paid, you still have some extra money left over.
What will you do with this extra money? You can use it to improve your finances further. You can opt to settle debts by saving up for a lump sum amount. Or you can give your emergency fund a boost. That way, when something happens, you don’t have to rely on debt to get out of that tough situation.
Downsize your lifestyle
If your current lifestyle makes it hard to live below your means, then you may have to downsize your lifestyle. What’s great about this is if you do it right, you may be able to achieve financial freedom as well.
Downsizing means you will change something about how you live your life so you can save more. Like if you downsize your home, you’ll be saving more than just the amount you’ll pay in your rent or monthly mortgage. You’ll also consume less in terms of utilities. That’ll make your monthly bills lower too.
Consider the things that you can downsize so you can have that extra money to use to settle debts once and for all.
Make more money during your free time
This is probably one of the most proactive ways you can take care of your debts. It’s also the hardest to do. It’ll involve working harder and exerting more effort to increase your monthly cash flow. The more you add to your income, the more you can pay off your debts. At the very least, you can use it to save for the settlement amount that you can use to get rid of your debts once and for all.
But what exactly can you do to make more money? You can go online to find freelance jobs. You can use a skill or hobby that you have and sell something.
If you can set up a passive source of income, that would also be better. Some people have extra rooms or spaces at home that they can rent out. It may be a room that you don’t use. Or it can be the garage that you don’t park the car in. Convert these areas so someone can rent it each month.
Follow the 50/30/20 rule
If you’re not sure how you can change your lifestyle, you can base the changes on how you spend your income. There’s this 50/30/20 rule that involves dividing your income into 3 different categories. Let’s assume that your income is $5,000 after taxes.
The first category is for your needs. You can spend 50% of your income or $2,500 on your basic needs. This includes food and groceries, shelter, utilities, etc.
The second category is for your wants. You spend 30% or $1,500 to pay for the expenses that you want – but don’t need to survive. This can also be food and groceries. But for example, while eating is a necessity, dining out is not. And clothing is a need but not the expensive designer ones.
The third category is all about your future. 20% of what you earn, or $1,000 for our example, will go to your future. This includes your savings, emergency fund, retirement fund, etc. You can also use this to save up for the payment you’ll use to settle debts.
By using the 50/30/20 as your guide, you can manage your finances properly so you can get out of debt once and for all.
Set these targets to help improve your debt situation
If you want to achieve debt freedom, you can set targets that will make it easier for you to settle debts.
Here are two targets you can start with.
Update your repayment plan
There are different debt relief options to help you with all types of financial situations. Choosing the right one, based on your specific debt and financial scenario, will prove to make the journey easier. So if you want to settle your debts, there’s a specific repayment plan that will help you do it. You can opt to work on it on your own. Or find a debt expert to help you. What’s important is you should know how to negotiate your debts. You need to talk to the creditors and convince them to allow you to pay only a portion of your debts. If they agree, you can pay the settlement amount and have the rest of your debts forgiven. This will help you save money on the total debt payment.
Increase your emergency fund
Another thing that you should do is to increase your emergency fund. This will not affect your current debt situation, but it will protect you from future ones. You see, one of the reasons why Americans are in debt is because they rely on credit to get them out of tough emergencies.
Well, this is the fastest way to accumulate debt. So if you can increase your emergency fund, that would keep you from having to use debt during desperate times. According to reports, 6 out of 10 survey respondents said they don’t think their emergency fund will last. If this is you, make sure that you can give your savings a boost. You want to be prepared for any unexpected situation or crisis. This will ensure that nothing will compromise your efforts to settle debts.