Frugality Wise

Tips, ideas, and resources for living frugally

Becoming Debt-Free

on March 19, 2014
Image courtesy of renjith krishnan /

Image courtesy of renjith krishnan /

Are you carrying a lot of debt on your shoulders? The first step in living frugally is to pay off your debt…the sooner, the better! Frugality and debt cannot effectively co-exist, so here are a few tips for becoming debt-free.

Pay off the full balance of your monthly credit card bill.

Paying only the minimum amount and carrying forward the remaining balance into the next month will incur interest charges towards your balance. Save yourself from paying unnecessary interest charges by paying off the full balance by the due date every month. I usually make one payment a month and pay off my balance on or prior to the due date near the end of the month. Some people choose to pay as they go, i.e. they will make a purchase with their credit card and immediately pay off the expense. So someone who makes multiple purchases with their credit card will make multiple credit card payments throughout the month. Whichever payment schedule you follow is up to you. The important point here is that you should have a zero balance prior to the start of a new month.

Cut up and cancel your credit cards.

I know, this one is a little drastic. However, if you lack the will-power to curb overspending then perhaps cutting up the credit cards is best for you at this time. Your savings account will thank you! Credit cards make goods and services exceptionally easy to obtain, and help enable impulse buying for those who lack will-power.

Cancel all but one of your credit cards and carry a modest credit limit. 

This tip applies to those who have a little more self-control, but have multiple credit cards. I’m of the opinion that having a credit card is a beneficial thing when used responsibly because it’s a good way to establish credit history. Your credit history will be checked when applying for certain things like a mortgage, and having a good credit history will make it easier to obtain that mortgage. (Of course, I’m assuming that by the time you’re ready to apply for a mortgage that you are at a point where you have little to no additional debt. A mortgage is a major expense and you do not want to have the burden of multiple other debts on top of mortgage payments to overwhelm you.)

Make aggressive payments towards your high-balance bills.

Here’s my personal anecdote on this one. When I started university, I applied for and received a student loan. Once I completed school I had a grace period where I could defer making payments towards what I owed. Once that grace period ended, the reality of paying off this loan sank in. For the longest time I was only paying the monthly minimum which seemed to only cover the cost of the monthly interest but wasn’t really making a dent in the principal balance. It felt like I was going to have this loan repayment looming over my head forever. Having this debt actually made me feel irritated. My increasing irritation spurred me into action when I was in my mid-twenties and I started making aggressive payments towards the balance. This loan repayment was eating up my existing savings, but I didn’t care. I wanted to be rid of this burden! When my balance was down to $2,000 I decided to make my most aggressive payment to date and pay off the remaining balance altogether. I briefly hemmed and hawed about taking $2,000 from my savings in one go, but I decided to just do it. I went to the bank, paid off my balance, and it was just the best feeling to no longer have any debt in my life! I felt a sense of accomplishment. Even the bank teller offered me her congratulations. The moral of this story is that consistent aggressive payments will make you debt-free faster.

Create a budget.

Figure out your monthly net income and expenses. Based on these numbers, figure out the highest amount you can manage on a monthly basis for aggressive debt-repayment. However, don’t forget to factor in your essential living expenses, e.g. groceries, utilities, etc. When you budget and you’re living with debt, you will need to drastically reduce (or completely eliminate, depending on your level of debt) any frivolous or non-essential expenditures. Also, keep in mind that you will probably have to sacrifice any short-term savings goals you may have until you’re at a point where you have little to no debt. Budgeting, whether you’re in debt or not, is a useful tool to help you stay on top of the flow of your finances. Using budgeting software or a simple template for tracking income and expenses is a great resource that allows you to adjust your spending habits accordingly if it becomes apparent that more money is flowing out than in.

Additional tips on becoming debt-free can be found via a simple Google search. Here are a few links to get you started.

How to Be Debt Free

How to be Debt Free – Steps to Setting a Realistic Debt Goal

Debt Management Guide: 8 Steps to Becoming Debt Free


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