How To Pay Off Debt

Many people have experienced the crushing weight of debt, with some statistics stating that up to 92 percent of what the world produces is in debt.


Debt seems like a good thing when everything is "working" as it should, with its devastating consequences only witnessed when things go out of plan, for example, when one loses their source of income.


We at Debt Free Living 254 believe that the only good debt is the one that has been paid off.


We encourage focusing on earning interest instead of paying it, a stand we know goes against financial cultural norms.


Related Article: How To Survive Job Loss


The Psychological Impact of Debt

Many people who have experienced debt recognize the feeling of being under stress, sometimes even subconsciously.


Some people are driven to suicide when they feel like they do not have a way out of the crushing weight of debt.


Many others try to brush off this feeling, with the thought of everyone having debt, forgetting that psychologically, the effects are individual.


Some end up making devastating financial decisions when under duress, for example, taking even more expensive debt as they try to dig themselves out of such financial holes, a testament to how debt can affect your ability to think as desperation sets in.


How To Pay Off Debt

Though people use several ways to pay off debt, we at Debt Free Living 254 encourage using the debt snowball method to clear off debt as it accounts for the psychological element of financial behavior.


If the choice to take on debt was purely logical, many of the companies lending at exorbitant rates would be non-existent as people would calculate interest rates and refuse to join the long list of humans suffering at the hands of overpriced loans.


The debt snowball method encourages you mentally to keep going as it starts you off with small wins that signify to your brain to keep pushing as you clear off the different loans you may have.


What Is Debt Snowball?

The debt snowball method is a way of paying off debt that requires you to take into account all of your debts and list them from smallest to largest regardless of interest rate.


At Debt Free Living 254, we consider this stage the 3rd stage of your journey towards financial freedom after the cashflow, and budget check stages.


Start paying off the smallest loan then move on to the next loan on the list while paying off the minimum required of any other loans that you may have.


Additional Tips

While paying off your debts (except the mortgage, where applicable), build up a mini-emergency fund to shield you from unforeseen circumstances that may cause you to go further into debt.


We encourage that you aim for a mini-emergency fund of at least an equivalent of 1,000 USD unless your 6-month expenses total is an equivalent that is less than this amount.


Once you are done with building your mini-emergency fund and have used the debt-snowball method to clear all your non-mortgage debt, work on building up your mini-emergency fund to a fully funded emergency fund that should cover 3 to 6 months of your expenses.

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