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Debt-Free and Bored: How to Manage Life After Debt Freedom

May 12, 2020 | 2 Comments

debt-free and bored

If you’re like me, you are probably still daydreaming about what it might be like to be debt-free. Surprisingly, many of the people I chat with once they reach financial freedom find it a bit boring. So, here are a few things to consider if you’re debt-free and bored already.

What it Means to be Debt-Free and Bored

You may be thinking, “how can you be bored with being debt-free,” but it is possible! The road to debt freedom is anything but boring. So, once you pay everything off, some individuals find themselves wondering, what next?

Many people actually slip back into debt at this point (almost like they are looking for a financial challenge). They’ll begin doing things they never would have done before paying things off. So, why now?

Well, financial freedom is very freeing but it also removes structure from your finances in some cases. If you were sitting down and budgeting to pay off debt, you knew where everything is going and typically have a few problems to solve. But, once you’re debt-free, things can get a little boring after a while. What’s next?

Things To Do

If you want to stay debt-free without boredom though, it can be difficult. There are so many things out there tempting you to swipe a credit card or take out a loan on. Here are a few things you can do if you find yourself debt-free and bored…

  1. Plan something you have to save for. Whether it is a vacation or a new car, you can always find something exciting to save up for. If not having a new financial issue to solve is the problem, finding a reason to save can help with your boredom.
  2. Take on DIY projects. Homeowners can take advantage of the freed-up cash they have from paying off their debts to make some improvements around their home. Put in that dream bathtub you’ve always wanted or re-do the kitchen. It’ll keep you busy and you’re putting money back into your real estate investment.
  3. Invest. Generally, once you’ve paid off your debt, you can start looking at different ways to invest. Be sure you’re maxing out your retirement contributions. Then, think about looking into other places to invest. The stock market can be an exciting place if you’re feeling bored.
  4. Bet on yourself. Maybe you’ve always wanted to quit your job and travel or start your own business. Without any debt attached to your name, you can bet on yourself. Take the extra cash you have and put it towards your next adventure, whatever it may be.
  5. Donate. Now that you can, donate some of your money to good causes. Take time out of your day to volunteer.
  6. Find new challenges. Just look for something else to challenge you financially. For some people, this may mean becoming active in the stock market. Others may look into peer-to-peer lending or different ways to expand their cash. Look for something that interests you.

I’m still working towards my own debt freedom goals, but thinking about a day where I might be “debt-free and bored” is exciting to me. Debt-free readers, what have you done to maintain your financial freedom?

Read More

  • Preparing for Financial Recovery
  • 3 Consequences of Abandoning Credit Card Debt You Never Knew About
  • Picking and Choosing What to Pay During the COVID-19 Pandemic
  • What To Do If Debt Is Accrued By Identity Theft

Filed Under: Budgeting, Debt Freedom Progress, Get Out of Debt Tagged With: bored with financial freedom, boredom, debt freedom, debt-free and bored, financial freedom, how to handle boredom when you're debt-free, life after debt freedom

The Complete Guide to Getting Out of Debt

July 24, 2019 | 11 Comments

getting out of debt

In total, Americans owe about $1.04 trillion in credit card debt alone. The average debt per person just on bank-issued credit cards comes in at $6,354. For mortgages, the average borrower in the US has $202,284 in housing-related debt. Student loans also pack a punch, leaving the average borrower owing around $33,654. With so much debt piling up, many households are desperately trying to reduce their balances and eliminate their debt. If you want to conquer your credit cards, ditch your mortgage, free yourself from student loans, and otherwise remove creditors from your life, here is a look at the steps you can take to get out of debt.

Create a List of Your Debts

Before you take any steps beyond making your minimum payments, you need to understand your debts. Create a list that includes all of the lender names, debt types, interest rates, minimum monthly payments, and remaining balances.

As you compile the information, you should end up with a table that looks like this:

Lender NameAccount TypeInterest RateMinimum Monthly PaymentRemaining Balance Owed
Bank of AmericaAuto Loan6.25%$336.21$18,112.36
Wells FargoMortgage5.5%$925.00$174,536.14
Capital OneCredit Card17.9%$181.40$7,256.18
Best BuyStore Credit Card25.9%$64.67$2,586.88
Sallie MaeStudent Loan6%$168.16$23,472.01
Credit UnionPersonal Loan12.9%$50.47$1,499.98

After gathering those details, you also want to total up your monthly payments to see how much you owe every month as well as your total balance owed. Using the example above, the total minimum monthly payments would be $1,725.91, and the total balance owed would be $227,463.55.

The idea is to get an incredibly clear picture of what companies you are paying, how much you are directing toward debt payments each month, and how much you owe.

If you are worried that you are overlooking a debt, head to AnnualCreditReport.com and request a free copy of your credit reports. The website is officially supported by the government, and you can get a copy of each of your reports from every major bureau every year at no cost. Then, you can review the reports for information about your creditors, including who you owe and other details.

Know Your Rights

If you have fallen behind on your debt payments, you might be stuck dealing with debt collectors. If so, it’s important to understand that all debt collectors have to follow certain laws.

Review the details of the Fair Debt Collection Practices Act if you want the most in-depth understanding of your rights and the various rules. If you want a solid overview using simplified language, the Federal Trade Commission’s Debt Collection FAQs is a good place to start. Along with information about what is and isn’t allowed, you can find out how to report a debt collector who violates the laws.

It’s important to note that individual states may have additional regulations regarding debt collection practices. In many cases, your state’s attorney general’s office can provide you with further details about your rights under your state’s laws. You can find contact information for your state attorneys general office through the USA.gov State Attorneys General search page.

Make Sure You Actually Owe on the Debts

There are instances where a person is subjected to billing or collection efforts even though the debt isn’t actually theirs. A company or debt collection agency might say that you need to pay when, legally, that isn’t the case.

At times, these attempts to get you to pay for a debt aren’t nefarious. In some cases, it is simply a mistake. A debt was associated with you on accident, such as through a technical error or an employee incorrectly entering customer information. If you believe one of the debts you are dealing with may fall in this category, contact the company or vendor. For additional support, you can also reach out to the Consumer Finance Protection Bureau, Better Business Bureau, or the Federal Trade Commission.

It is also possible that you have been the victim of identity theft. In these cases, someone else pretended to be you or used your personal information – such as your name, Social Security Number, and birthdate – to fraudulently open an account, making it appear that the debt is yours. If you might be the victim of identity theft, the Federal Trade Commission’s Identity Theft website can give you details about how to address the problem.

If a lender or debt collector says that you are responsible for a deceased loved one’s debt, they are usually incorrect. Debt can’t typically pass from one generation to the next if the surviving family member isn’t listed as an official borrower, such as by being a cosigner. Instead, any repayment is handled through the deceased’s estate. However, if you aren’t sure about your liability, you can consult a lawyer. Inheritance laws may vary from one state to the next, so it is wise to speak with a professional to confirm you aren’t responsible.

There are also situations where the debt was genuinely yours, but you are no longer obligated to pay it based on its age. There is a statute of limitations for many kinds of debt, and, once that period ends, the unpaid amount is time-barred. How long that time period is varies based on the type of debt and state law. If you aren’t sure if one of your debts is time-barred, contact your state attorney general’s office.

Understanding Your Interest Rates

Most people have heard debts being referred to as “high interest” or “low interest.” However, there isn’t usually a clear line that identifies what rates fall in which categories.

Since common repayment advice usually tells borrowers to focus on high-interest debts, it’s important to have some form of benchmark. One of the easiest ones is to compare the interest rate to what you could earn as a return if you invested the funds. If the interest rate is above the average return on an investment, consider it high-interest. If it is below, then consider it low-interest.

For example, the average S&P 500 return over the years has been about 10 percent. Using that example, all debts with a higher rate would be high interest. Any debts below 10 percent would be low interest.

Negotiating Principal and Interest Rates

Some borrowers are surprised that negotiating on debt principals and interest rates is an option. If you are struggling with your debt but have managed to stay current on your payments, you might have a decent credit score. If that is the case, you might be able to request a lower rate, reducing how fast interest builds up and potentially lowering your minimum payment.

If you do get any reductions in interest rates, update your debt list to reflect the new interest rates and minimum payments. Additionally, recalculate your total monthly payments and total amount owed, ensuring the information is current.

Additionally, if you can offer a substantial lump sum that is slightly below what you owe, the lender or debt collector might accept that amount as payment in full. Contact them, let them know what you can pay, and see if they will settle the debt for that amount. If so, get their commitment to closing everything out in writing before you send the payment. That way, you are protected if they try to avoid living up to their end of the bargain.

Just keep in mind that, if you settle the debt for less than you owe, there may be tax implications. You could receive a 1099-C (cancellation of debt tax notice) from the company. That means the difference between what you paid and what was owed might be considered income by the Internal Revenue Service (IRS), impacting your tax obligations. If you want to find out if the canceled debt is taxable, review IRS Topic No. 431 for additional information.

Create a Household Budget for Tackling Debt

Once you know who you owe and how much, have confirmed that you are responsible for the debts, and have negotiated when possible, you need to create a new household budget. Use your debt list as a starting point.

Next, add any more monthly expenses you have to handle. For example, this could include rent payments, utility bills, home or renter’s insurance, auto insurance, and any other recurring bills.

Then, put in details about your other living expenses that aren’t bills. For instance, groceries and fuel for your car would fall in this category.

The goal is to get a holistic view of where your money goes every month. If you spend money in one area on a monthly basis, write it down.

If your expenses exceed your income, then it’s time to make some cuts. See what costs you can reduce or eliminate. For example, eliminate cable television, reduce the number of streaming services you use, and pare down your food budget.

If you do not have a budget template, you can get one here.  Here is a handy screenshot so you can see what a good budget looks like.

While you might have to live a bit uncomfortably for a while, this process will help you live within your means and pay off debt. Otherwise, you’ll need to find options for augmenting your income if you want to make serious headway.

Increasing Your Earnings to Defeat Debt

Whether you have a budget shortfall or simply want to tackle your debt as fast as possible, increasing your income is always a smart move. Begin by examining all of your household items and decide if there is anything you could sell. The average American household has 300,000 items in it, so really scour your house for unused things that could be sold for some quick cash that you can put towards your debt.

After that, consider if you can enhance your earnings. Is getting a raise at your current job a possibility? Could you take on a second job? What about some freelance gigs? If increasing your income from work is possible, explore it.

Finally, you can also see if there is any assistance available that might allow you to pay off your debts faster. Check to see if you are eligible for government programs based on your income. Reach out to area non-profits, particularly if you might miss a rent, mortgage, or utility payment. While you might not find any options here, it is worth checking out if you are genuinely in dire straits.

Creating a Debt Payoff Strategy

Before you go beyond making your minimum debt payments, you need a payoff strategy. This will help keep you focused and prepare you to tackle your debt in the best manner possible.

There are two effective and popular strategies for paying off debt.

1) Debt Snowball. The Debt Snowball strategy was popularized by Dave Ramsey, a personal finance expert. In this approach, you focus on the debt with the smallest balance.

Essentially, you pay the minimum payment on every debt but the smallest. Next, you send every extra dollar you can toward the smaller debt. Once you tackle it, you get the mental boost of having a success. Then, you focus all of the money that was going to that debt to the new smallest debt, continuing the cycle until everything is paid off.

2) Debt Avalanche.  The second option, the Debt Avalanche, concentrates on the highest interest rate debt first instead of the smallest. You make the minimum payment on every debt, only sending extra cash to the highest interest debt. Once that one is conquered, you focus on the new highest interest account. This approach is the best financially, as you’ll pay less in interest than if you use the Debt Snowball method in many cases. However, if your high-interest debts are large, you don’t get a mental win as quickly, which can be tough on your motivation.

Either approach is viable, as they both help you get out of debt. Consider if you need the mental boost of a quick win. If so, the Debt Snowball is for you. If not, then use the Debt Avalanche to save on interest.

Sometimes, it is easier to decide if you can see the difference. Luckily, you can find easy to use debt snowball and debt avalanche calculators that will do the math for you, allowing you to input information about your debts and see exactly how the results differ.

Keeping Yourself Motivated

Paying off your debt takes time. As a result, you need to find methods for keeping yourself motivated that don’t involve unnecessary spending.

Many people enjoy having a visual aid. For example, you might create a debt thermometer that you can color in as you pay down your balances. This can help you see how far you’ve come, making it clear that progress is happening.

Additionally, updating your balance owed on your debt list to show the lower amounts can be encouraging. You get to put in smaller balances every month, an that can help keep you motivated.

Don’t Look for Shortcuts

While nearly everyone wishes that there was some kind of shortcut that can lead to debt elimination, there usually isn’t. It takes time, work, and dedication.

While there are reputable debt management organizations out there that can help make the process more manageable, there are also a ton of scams. Any company that touts their supposed ability to work a miracle and make your debt disappear should be considered highly suspect. If you are considering a formal debt management plan, research the organization heavily to make sure it is legitimate and doesn’t charge high fees that make your tough situation worse. If you have any doubts about their credibility, walk away, and get out of debt on your own.

Similarly, while many would suggest debt refinancing or consolidation, that isn’t always an ideal road. If you don’t have stellar credit, you might get a worse interest rate than you are dealing with today. Plus, it could potentially open the door for accumulating more debt, and that could make your situation worse.

This is especially true for balance transfer credit cards. Even if you could get a 0 percent rate for a period of months, using the service typically comes with a fee (around 3 percent of the amount transferred). Plus, if you miss a payment, you might lose the promotional rate, leaving you stuck with the regular (or even a penalty) rate instead. Unless you can be genuinely diligent and pay off the entire transferred amount before the promotional period ends, it usually isn’t worth pursuing.

Helpful Resources

There are plenty of helpful resources that can make your journey easier to manage. For example, online communities can give you moral support and might share tips that can help you get out of debt. Here are a few worth checking out:

  • Saving Advice
  • myFICO
  • Credit Karma

There are also tons of Facebook groups dedicated to getting out of debt. You can perform a simple search and find people who are on the same debt conquering journey, which can be very beneficial.

Additionally, there are a bunch of personal finance experts that dole out helpful advice, including:

  • Dave Ramsey
  • Suze Orman
  • Robert Kiyosaki
  • Neale Godfrey

While you might not agree with everything they say or recommend, all of those experts can help you start thinking about personal finance in a new way.

If you need to do some more calculations, there are plenty of free calculators available too. Here are some free options:

  • me
  • CNN Money

Ultimately, it is possible to get out of debt. While it does take time and diligence, it is a journey worth taking. Assess where you are, figure out where you want to be, and create a strategy that will let you get from point A to point B over time. In the end, you’ll be happy that you started on the journey and elated once you are done.

Filed Under: Budgeting, Get Out of Debt, Goal Setting Tagged With: debt, debt freedom, debt payoff, Debt Payoff Approach

Is Your Outlook Holding You Back?

June 13, 2019 | 1 Comment

outlook

Most people look at me stunned when I say my husband and I have a debt freedom goal. One of my best friends literally lives on credit cards, while others scrounge paycheck to paycheck just to be able to go out to eat and live above their means. What I’ve found is that it isn’t your financial situation that sets you back from reaching debt freedom. In most cases, it is your outlook that makes the difference.

I’m Overly Optimistic

I must admit, I am an overly optimistic person, especially when it comes to the future. After all, it can be whatever you want to make it, right?

This can be both good and bad. Sometimes I do fail to see what could go wrong or when things just aren’t possible. I refuse to accept “can’t.” My husband, on the other hand, is someone who thinks of everything that could possibly go wrong and finds a solution for each of those problems before they even happen. We balance each other well that way.

However, my positive outlook has been beneficial in many areas of our lives. From our debt free journey (we are $20K+ down in a year) to our fitness journeys, positivity has been key!

How a Positive Outlook Has Helped Me With Weight Loss

If you don’t already know, I have been on a weight loss journey alongside my debt freedom journey. Over the past three years, I’ve lost about 132 pounds. My husband has lost 70.

outlook

One thing losing weight and paying off debt have in common is that they are both difficult. Extremely difficult. I have to look for inspiration daily to keep on track with both of these goals. Whether I find a new inspirational person to follow on Instagram, read some inspirational article or book, or simply have a dose of daily affirmation, positivity keeps me moving forward.

Positivity and Paying Off Debt

They say there are characteristics most debt-free people have. One of these, for us, is a positive attitude.

We took a look at our finances a couple of weeks ago so that I could provide a debt update here on the blog. When we tallied everything up, we’d paid off $22,565 over the span of a year, bringing our $65,000 debt down to around $40,000.

There are plenty of days we both want to quit and run a credit card for something or take a break from payments to go on a trip. We are both able to keep a positive mindset when it comes to paying off our debt because we know how great it will feel once we reach our goal. We already know what it feels like to hit goals in our weight loss journey and can’t wait to feel what it feels like being debt free!

All in all, a negative outlook could really harm your chances of meeting any of your goals. If you don’t think you can do it, you won’t. Clear your mind from negativity and move towards your newly painted future, whether it be health, finances, or other goals you have in mind.

What do you think? Has a negative outlook ever impacted your ability to meet goals? 

Read More

  • The Great Debate: Dip Into the Emergency Fund or Take on New Debt?
  • Why You Should Have an Emergency Fund (And How Much You Really Need)
  • Debt Blogs to Follow for Inspiration
  • Inspirational Money Quotes That Will Motivate You to Pay Off Debt

Filed Under: Couples, Debt Freedom Progress, Get Out of Debt, Goal Setting, Inspiration Tagged With: debt free attitude, debt freedom, outlook, positivity

’13 Reasons Why’ Being Debt Free is Awesome (and I Can’t Wait for It)

April 3, 2019 | Leave a Comment

Being debt free is awesome

Debt freedom. Those two words literally make me grin ear-to-ear, and who wouldn’t? Can you imagine what your life will be like once you’re no longer being crushed under credit card bills and car notes? Here are 13 reasons why being debt free is awesome (and I can’t wait to get there).

13 Reasons Why Being Debt Free is Awesome

Although I haven’t gotten there (yet), I’ve heard plenty of people talk about how great it feels to have the heavy burden of debt lifted off your shoulders. Here are a few reasons why it feels so awesome…

1. You are free to truly live.

When you aren’t bogged down with your finances you are free to enjoy other things in life. Maybe the stress of your debt made it impossible to go on vacation or practice good self-care. Without debt, you’ll have the ability to do what you want to do when you want to do it.

2. You feel accomplished.

Most people who have accomplished the feat of debt freedom say there’s nothing else like it in the world. Once you’ve paid off your last account, the sense of accomplishment is astounding. It is enough to boost your self-esteem and help you gain confidence where your money is concerned.

3. Being debt free strengthens your marriage and relationships.

This is especially true if you worked on being debt free with someone. For instance, my husband and I are working together on our debt-free goal. At the end of this journey, we will come out stronger (and avoid debt like the plague).

4. You’ll have more money.

When you’re not paying on your credit cards or other debts every month you’ll have more cash flow. At first, it is important to take this extra cash and fully fund your emergency savings (3-6 months of expenses). After that, you can spend freely, invest, and build wealth.

5. Debt free folks have more fun.

It is true! You’ll be able to take that vacation you’ve been postponing without worrying about being able to pay the bills. Not to mention, you won’t have to check your bank account before you go out with friends. You can have peace of mind where your finances are concerned.

6. The feeling of financial security increases.

Being debt free is awesome because it makes you feel more secure in almost every aspect of your life. Financial security increases, security within relationships, and feelings about yourself all become more positive.

7. You can make changes you’ve been wanting.

Many people who become debt free find themselves changing jobs or moving once they’ve reached their financial goal. If you’ve been putting off going after your dream job or moving to the beach, becoming debt free can help you make those changes.

8. Now you have the opportunity to build wealth.

Now that your debt isn’t weighing you down you have the opportunity to begin saving, investing, and building wealth.

9. Maybe you can retire early!

While you’re building wealth, you’ll also be building your retirement fund. Most people who become debt free early on find they are able to retire early.

10. There are fewer risks and more peace of mind.

When you’re holding on to a lot of debt there is always something worrying you. With less liability hanging over your head you’ll have peace of mind.

11. Your stress levels will drop significantly.

Because of the peace of mind you’ll receive from being debt free, your stress levels will drop. You won’t be biting your nails over the next credit card bill or whether or not your car is going to be repossessed.

12. Being debt free is awesome for your mental health.

All of this has a profound impact on your overall mental health as well. Many people find they are no longer depressed, have more energy, and feel happier. (Remember, debt is not a death sentence.)

13. You’ll be able to live your best life being debt free.

When all is said and done, paying off your debt will free you up to live the best life you possibly can. You will have the freedom to do whatever it is you want to do (within reason, obviously). Take the trip you’ve always wanted, send your kids to college, retire early, and live the way you want to.

For those that are already debt free, what is your favorite part about it? 

Read More

  • $65K in Debt and Starting Our Debt Free Journey
  • Becoming Debt Free: Side Jobs to Help Pay Off Debt
  • How to Recover From a Setback on Your Debt Free Journey
  • Self Lender Reviews: Building Credit With a Loan

Filed Under: Couples, Debt Freedom Progress, Get Out of Debt, Goal Setting, Inspiration Tagged With: 13 reasons why, being debt free is awesome, debt free, debt freedom, why debt free, why you want to be debt free

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