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Six Steps to Crushing Debt

Step 1: Choose your debt-crushing method
There are two approaches toward getting rid of debt:

• The snowball method involves paying off your debt with the smallest balance first and then moving to the next-smallest, until all debts have been paid off. You make minimum payments on everything else except the smallest debt and focus on paying that one debt down first. Once a debt is paid, you take the money you were putting toward that payment and roll it onto the next-smallest debt owed.

•The avalanche method involves getting rid of the debt with the highest interest rate first and then moving on to the debt with the second-highest rate. Once you eliminate a balance, you take the funds you’d been using for those payments and put them toward your next-highest-interest balance, all while making the minimum payments on the rest of your debt. 

Each method has its advantages, with the snowball method placing a heavier emphasis on achieving results at a faster pace, and the avalanche method helps you save money by getting rid of the costliest debt first. Choose whichever method appeals to you more.

Step 2: Maximize your payments
Credit card companies are out to make money, and they do this by telling you only to make the minimum payment each month. Avoid this by maximizing your monthly payments. Free up cash each month by trimming your spending in one particular budget category and channel those funds toward the first debt on your list. Don’t forget to continue making minimum payments toward your other debts each month!

Step 3: Consider a debt consolidation loan
A personal loan can provide you with the funds you need to pay off your bills and leave you with one single, low-interest payment to make each month. Or, transfer your credit card balances to one single card that offers a low-interest or no-interest introductory period. Be aware, though, if you choose a 0% introductory card, you will likely get hit with high interest rates when the introductory period ends.

Step 4: Build an emergency fund
As you work toward pulling yourself out of debt, it’s important to take preventative measures to ensure it won’t happen again. You can do this by building an emergency fund. Start small, squirrelling away whatever you can in a special savings account and adding the occasional windfall to beef up your fund.

Step 5: Reframe your money mindset
What got you into this mess? Are you consistently spending above your means? Is there a way you can boost your salary or significantly cut down on expenses? Lifestyle changes won’t be easy, but living debt-free makes it all worthwhile.

Step 6: Put away the plastic
Credit cards are an important component of financial health, but when you’re working to free yourself from debt, it’s best to keep your cards out of sight and out of mind. Learning to pay your way with cash and debit cards will also force you to be a more mindful spender.

Best of luck on your journey toward financial freedom!