3 Practical Ways to Live a Debt-Free Life — Number 3 Will Surprise You!
You’re struggling to be on good terms with finances, while your next-door neighbor has already made it to the most luxurious house in town. Is there any secret they might have cracked that you’re unaware of?
Fast forward to today, the average American debt is $103,358, which makes it safe to say that you’re not alone in the boat. But knowing just that is not enough, right? That’s why we’ve got you three sensible, smart, and easy ways to dig your way out of debt and live your dream life.
1. Define Your Goals
Goals bring clarity to the bigger picture, and so do your debt and income goals. Calculating your debt-to-income (DTI) ratio will certainly assist you in setting realistic goals and finding your escape from the debt trap to a freedom-filled life. As a general rule of thumb, you should always aim for anything below 43% since it qualifies as a healthy income and debt obligation.
For example, let’s assume your debt specifics are as follows:
Mortgage loan = $1000
Car loan = $600
Credit card loan = $550
And your ….
Total monthly debt payment = $2000
Gross monthly income = $7000
Now, to find out your DTI ratio, we will use the following formula:
DTI ratio = Total monthly debt payment/Gross monthly income × 100
You can put the values accordingly, but here, we will lead according to the values given above:
DTI ratio = $2150/$7000 × 100
DTI ratio = 0.30 × 100
DTI ratio = 30%
Therefore, it’s evident that 30% of your income will go down to debt payment each month in this case. Or you can decipher your very own DTI ratio using this exact method for a more comprehensive view of your situation.
2. Work out a Budget Plan
How come you pull the strings of financial struggle if you keep tossing your money at every shiny thing that comes your way? That’s why creating and sticking to a budget is one of “THE BEST” money habits that helps you stay on track.
A budget is more like a “Financial Map” that pivots around tracking records of your spending, paying off loans, estimating current and future income status, and checking up your finances so you can navigate your way to a debt-free lifestyle.
For instance, if your goal is to funnel $2100 of $7000 (your gross monthly income) toward debt each month, there is nothing better than budgeting to allocate this amount without wreaking havoc on your daily expenses.
3. Prioritize Your Savings
Getting yourself out of debt and enjoying a debt-free life comes with its own terms. One of the aspects of it is drawing a line between your needs and greed. Needs include the things that are mandatory, such as food, clothes, and shelter; and anything other than that falls under the category of greed or desires that can never be fully satisfied.
“Adults devise a plan and follow it, children do what feels good.” — Dave Ramsey
Speaking of which, you have to cut back on dining out every week, watching movies in the cinema, going shopping frequently, and subscribing to premium cable channels — all while saving all the money for the better. Your future self will thank you for this!
Conclusion
Life is nothing simple but a bumpy road, with each turn full of surprises. You have no control over what will happen in the next moment; however, you’re completely in control when it boils down to planning and prioritizing your needs and wants. The above three ways are your ticket to managing your debt load and living your dreams in reality.
