How To Repay Debts While Maintaining Your Financial Freedom

Learn effective debt repayment strategies to easily manage and free yourself from financial burdens.

Who doesn’t want to be financially independent? Of course it the dream of everyone to be financially stable and perhaps live his or her dream life. There are many factors that can hinder an individual from achieving financial freedom, one of them being debt or debts. Financial freedom is a process or rather a journey that takes sometime. Debt on the other hand is a financial burden. As you can see, planning for financial freedom while having a debt is like walking while carrying a heavy load, which can make your journey difficult and stressful. This calls for debt repayment to make your financial goals easy and faster to achieve. In this article, we are going to explore how you can achieve your financial goals while repaying your debt simultaneously.

Understanding the Impact of Debt

Having a debt whether small or big will cause a significant impact to you in many ways or aspects of life. Debt can impact you healthwise by causing stress, anxiety and even depression. These mental issues can affect your quality of life and general productivity. Just remember that peace of mind is critical to ones health and well being. Economically, debt can also affect your financial growth in many ways. Debt repayment repayment reduces the available cash for savings and investments. You can also miss out on opportunities for lack of finances. Defaulted debts can cause negative ratings on your credit score which can limit your credit opportunities in future. Debt can impact you even beyond what we have discussed.

Step 1: Assess Your Financial Situation

Your financial situation will determine in a great way your ability to repay debt and how much you can commit to debt repayment each month. At this stage, you need to examine your income which is your salary, rent income, interest and profits if any and even side hustles. Also try to track your debts and understand how much you owe creditors. Finally, have a keen look at your expenses. Expenses could be either fixed or variable as discussed below:

Fixed expenses

As the name suggests, these are costs that do not change each month, they remain constant and include expenses such as rent or mortgage payments, insurance premiums, utility bills and debt payments. Since these are unavoidable expenses, they should be accounted for first in your budget.

Variable Expenses

Unlike fixed expenses which remain constant every month, variable expenses are fluctuating costs such as groceries, entertainment, transportation and discretionary spending. Variable expenses can be adjusted based on financial priorities and goals.

Pending payments / Debts

Now, you need to understand how much money you owe to creditors and any financial obligations that you may have. Start by list down all your debts. Keep in mind also to record the maturity of your debts and interest rates. The interest element determines how cheap or expensive the debt can be. In this regard, make a priority list of debts basing on interest rate and make sure you start by repaying high interest debts to save on interest costs.

Step 2: Choose the Best Debt Repayment Strategy

After carefully assessing and examining your debt situation, you will have the rightful information that will guide you on the best debt repayment strategy. With many debt strategies available, you are only supposed to choose one that aligns with your interests and financial situation. Below are the commonly known debt repayment strategies.

The Debt Snowball Method

In this method, you organize your debts from the smallest to the largest one, ignoring the interest rates element. Then start making small payments on all the debts while making huge payments on the smallest debt with an intention to clear it. After clearing the first smallest debt, you now move to the second smallest debt. Now that the smallest debt is done, those huge payments will be transferred to the second debt while maintaing the small payments on all debts. The second debt will now receive small payments plus payments that were previously made to first debt. The process continues like this up to the last debt.

This method boosts the borrowers motive to repay debts. After repaying the smallest debt, there is fresh energy and confidence that pushes borrowers to repay subsequent debts. This momentum keeps the fire burning. The disadvantage of this method is that it ignores the interest element which are additional costs to the borrower.

The Debt Avalanche Method

IThis method is similar and at the same time different to the Debt Snowball method in a number of ways. While the Debt Snowball method organizes debts from smallest to the largest basing on amounts or debt balances, this method also organizes the debts from the smallest to the largest but based on interest rates. Debts with the highest interest is considered first and the sequence continues up to the debt with the smallest interest which will be repaid last. Just like Debt Snowball method, minimum payments are made on all debts but in this case, the highest interest debt receives extra money.

This method puts more emphasis on reducing costs by paying off high interest debts first. Remember that financial planning and management is all about minimizing and saving costs and this is one of the ways to save costs.

Step 3: Adjust Your Budget to Free Up Money for Debt Repayment

At this stage, you are now in the mood of repaying your debts and of course you will have to make financial sacrifices or changing your lifestyle in order to comfortably accommodate the burden of repaying debts. This could be well fixed through reviewing your budget and making some adjustments where necessary. Below are some of the initiatives you can take in this regard:

Avoid Unnecessary Spending

To manage this, focus only on your basic needs and avoid wants or those expenses you can live without such as upgrading your smartphone or iphone, partying and out door dinners and impulse purchases. Instead of using your personal car or uber, you can use public transport to save on your transport costs. You can also move into a slightly cheaper house to save on rent costs and channel the money into debt repaying.

Negotiate Lower Bills

Negotiation is a critical skill that can save you dollars of money. On every expense you make, make sure to negotiate for favourable prices. Also, take advantage of offers, discounts and deals especially from service providers and even chain stores and supermarkets. This strategy can save money that could be chanelled into debt repayment.

Increase Your Income

While cutting costs or expenses can make you retain more money, increasing your income can accelerate your progress. There are many possible ways to boost your income such as side hustles, freelancing, working for exta hours at your work place, bargaining for salary increment and selling products and services. These exta income avenues will make it easy and faster to clear your debts.

Step 4: Avoid Accumulating New Debt

After repaying initial debts, individuals still find themselves taking on new debts. Here, the problem is not debt itself but what is causing them to take on debt. This could be inadequate financial planning or lack of financial education which means that these individuals could be financially illiterate. Financially literate people understand how and when to take on debt. They are also well informed about advantages and disadvantages of debt and they even know how to avoid debt or to live a debt free life. In short, understand what is making you to be debt reliant and fix it or else it will be hard to break that debt chain.

Step 5: Stay Committed and Track Progress

In your debt repayment journey, an important piece of information is that you will note achieve everything on day one. It is a process that takes months and years so you need to be highly motivated. To keep going, track your progress at every step. Note out successful steps you made and even celebrate them to be warmed up and to get momentum that will take you through the next steps. To track your progress over time, you can use tools like charts, graphs or just progress tracker.

Step 6: Build an Emergency Fund to Prevent New Debt

Most of people who have debts are those who were financially pressed but did not have any way out other than borrowing. For instance, someone felt sick and went to hospital, after treatment, he or she was billed $2,000. Because she didn’t have any alternative to raise the hospital bill, she took on loan. Now, what if she had some savings or an emergency fund? Of course the fund could have raised the money for the bill, leaving her or him debt free.

As a way of financial preparedness, an emergency fund can save you in many ways and it is easy to build one by allocating a portion of your income to the fund to take care of unexpected expenses or costs. Experts recommend that the fund should have enough money that can sustain you for 6 months to one year incase you lost your job and other sources of income.

Boosting Your Income to Accelerate Debt Repayment

As a general rule, you are going to repay your loans from your income. The loan repaying period entirely depend on the loan instalments or the amount of cash you are paying each month towards your loan. If the instalments are significant, it means that it will take you a short period of time to clear the debt and it will take much longer if you are making small instalments each month.

There are several ways to boost your income such as salary increment, working extra hours, side hustles, freelancing or just selling products and services. You can also reduce your expenses as well especially luxurious things and other wants to save more money.

Why Increasing Income is Essential for Debt Repayment

Just as we have discussed in the previous chapters and paragraphs, increasing your income supports debt repayment in maany ways. First, it eases financial pressure in a way that you will not have to deny yourself or sacrifice alot of resources while repaying debts. In this case, you will have a relaxed mind as debt repayment will not affect most of your programs such as savings and investments.

The other reason to increase your income is that it reduces the loan repayment period. This means that with more cash at your disposal, you will commit more resources towards loan repayment which will enable you to clear the balance in a short time. For example, if you owe $10,000 and you make monthly payments of $50, it could take over a decade to pay off the balance. However, if you increase your monthly payments to $500, you could clear your balance in less than 2 years.

Ways to Increase Your Income and Pay Off Debt Faster

1. Negotiate a Raise at Your Current Job

To most people, salary is the main source of income and determines the level or lifestyle. If you are one of them, you need to invest in knowledge and skills to be more competitive. However, you will need a tangible evidence which is good performance in duties that will support your bargaining for a salary increment. You can do this by documenting a list of your achievements and contributions in the growth of your company. You can describe how you improved various processes in the company that led to operational efficiency, cost saving and general profitability.

2. Take on Freelance Work or a Side Hustle

Side hustles and freelancing are the best strategies to ease pressure on your salary. Through these means, you can earn extra income that will support your financial needs. They basically work to supplement salary.

Most common side hustles:

Freelancing

One of the ways to earn extra income is through freelancing. If you have skills and experience in areas like writing, graphic design, digital marketing, programming or video editing, you can register as a freelancer on platforms such as Upwork and Fiverr. These platforms provide a direct connection to clients who need your skills. Freelancing offers flexibility and the potential to scale your earnings based on demand and experience.

Online Coaching

You can explore online coaching if you are excellent in specific subjects or areas . You can teach students on platforms like VIPKid, Wyzant or Tutor.com. This allows you to earn money while supporting and helping learners get knowledge and skills necessary in their lives.

Driving for Rideshare or Delivery Services

Driving for rideshare or delivery services is another flexible way to make extra money. Companies like Uber, Lyft, DoorDash and Instacart allow individuals to work and make money through picking up passengers or delivering food and groceries to respective clients. This is a nice side hustle for those who enjoy being on the road and meeting new people.

Monetize Your Skills or Hobbies

You can monetize your skills and hobies such as swimming, traveling or exploring, cooking, hair dressing just to mention but a few by streaming them on You Tube channels, social media reels and short videos. You can apply other strategies to monetize your hobies and make profits out of them.

Photography

There are many people online searching for various sorts of pictures. These could be photos for different animal species, plants, rivers, lakes, oceans, mountains and everything that nature has given. You need some photography skills to shoot at various angles, a good camera for quality photos and a small budget to walk aroud. You can sell stock photos on platforms like Shutterstock, where businesses and content creators constantly seek high-quality images. Alternatively, you can offer your services for events such as weddings, birthdays and corporate gatherings who need photography services.

Fitness Coaching

If fitness is your calling, why not transform it into a profession? With the increasing demand for health and wellness coaching, you can become a certified personal trainer or just offer virtual fitness sessions to help people while generating income. Many people are looking for guidance to stay in shape, and your expertise could help them in a geat way.

Music or Art Lessons

For the music or arti enthusiasts, you can teach others to make money out of it. This can be through playing instruments, painting or just drawing. You can offer lessons that can help you share your knowledge while earning extra money.

Blogging or Content Creation

You can leverage on the growing internet and social media usage to produce content that will excite viewers or users and make money out of it. This can be through strategies such as blogging, launching a YouTube channel or starting a podcast that can eventually lead to earnings through ad revenue, sponsorships from brands or businesses, affiliate marketing just to mention but a few. Aim at building a strong audience although it requires consistency and effort, but over time, it can turn your content into a source of sustainable income.

3. Work Overtime or Pick Up Extra Shifts

Although it may not be available in all companies, you can take advantage of it if your employer allows and pays for overtime. Working for some extra hours and sometimes showing up for work on weekends and public holidays is a great way to boost your income.

4. Start an Online Business

Online business is a good venture although it requires time, energy, patience and consistency. Once established, it can provide sustainable and long term revenue. Most of the revenue from this business is passive income, which you will earn anytime even while sleeping. The most common online business models include E-commerce shops or stores, dropshipping businesses and affiliate marketing just to mention but a few.

Additionally, if you have expertise in a particular subject, you can sell e-books or online courses through platforms like Udemy or Gumroad. While it takes time to build and scale an online business, the potential earnings are just handsome as compared to traditional side husles.

Conclusion

Before taking on any debt, you are debt free. This is the right state if your main forcus is attaining financial freedom and stability. however, it is still possible to be debt free when you already have debts provided you commit yourself to repaying them while reducing your current expenses and increasing your income. While still servicing current debts and even after you clear your debts, avoid taking on new debts. You can avoid new debts by practising prudent financial planning through creating and following a budget while making expenses. You can also buid saving accounts and emergency funds that you can rely upon during emergencies.