How to Go from A to Debt-Free in Five Steps

Debts hanging over your head have the potential to become more than the sum of their parts, depending on your attitude. More than 75% of Australians are in debt, and it can be nearly impossible to avoid when pursuing big goals like becoming a homeowner or launching a new business.

The issue is that unmanageable debts may end up costing you more money than you initially thought. Your mental clarity and decision-making skills can be severely impacted by financial stress. In fact, a recent study from the University of Berkley revealed that financial strain can actually lower your IQ by up to 13 points, which is quite concerning.

It might be time to stop avoiding debt and start competing if it’s keeping you up at night. You are the one fighting the debt, and having knowledge of what works will help you further:

1. Face the numbers with bravery

Despite your fear, go ahead and do it. Since you can’t manage what you don’t fully understand, make a list of all of your debts, including credit card debt, loans from friends, store cards, and outstanding direct debits, down to the last cent. Though you should be ready for shock value, this is the highest level of fear. It’s also a good idea to get in touch with each of your debtors if you’re having trouble making your payments; the majority of them will accept installment payments.

2. Adopt a minimalist lifestyle (for the short term)

Although there are certain expenses you can’t avoid, like groceries, rent, and utility bills, you can save a lot more money than you might think if you avoid eating out, impulsive clothing shopping, Uber rides, and random snack purchases. You’re saying “Yes” to becoming debt-free and much more at ease with your finances each time you say “No” to these things.

3. Decide on your plan for crushing debt

Both the snowball and avalanche approaches are widely used to pay off debt.

Regardless of the interest rate, you pay off your lowest debt first when using the snowball method. This provides you with an extra push to take on the next challenge and the next. If your goal is to save as much money as possible, Avalanche is the right option for you because it allows you to focus on the debt with the highest interest rate. With both approaches, you cross off a debt as it is paid off and move on to the next one on your list.

4. Maximize every dollar earned

Now is the time to think outside the box when it comes to your income. Think about working for yourself, asking for more hours, selling stuff you don’t need around the house, or even better, getting a raise.

5. Honor your victories

Never forget that paying off debt is a victory. Remind yourself of your motivations—freedom, tranquility, restful nights, and feeling optimistic about the future—when you start to lose steam. Give yourself a pat on the back for trying, and most importantly, get back on track if you miss a week or make a mistake! Greater success can be achieved by rising to challenges than by having a high IQ.