If you could just get out of debt, your life would be easier, right?
Sometimes it can be hard to sleep at night when you think about how much you owe and wonder how you’ll ever pay it back. But once you form a debt reduction strategy, you’ll be able to relax more.
It’s not easy to pay back debt — or to make the sacrifices necessary to make it possible — but putting a plan in place can relieve the anxiety that comes with uncertainty.
Furthermore, when you have a plan to get out of debt instead of merely making the minimum payments, you’re saving a ton of money. The interest on credit cards or any loans you might have missed payments on can cause your debt to balloon, so the quicker you get it under control, the better.
1. Tally Your Debts
You can’t make a plan to get out of debt if you don’t know how much debt you have. We know it’s scary and you don’t want to look, but facing how much debt you have is the first step, and if you don’t take it, you’ll never get out.
2. Add up Your Expenses
Debt can be crushing, and sometimes what is preventing you from paying it off faster is other expenses. Mortgage/rent, car payments, groceries, gas, utilities — all these add up quickly, and they leave less cash for you to pay off your debt.
3. See if You Can Make Cuts in Your Budget
If trimming a little here and there, like getting takeout less often or limiting the number of times per month you go out with friends can help make a dent in your debt, then that’s a good place to start.
But if these measures will be a drop in the bucket, you might have to make some more drastic changes. If you have a huge car payment, consider selling your car and getting a cheaper one. If you are struggling to meet your rent, you might do better in a roommate situation.
If you can’t do much with No. 3, you’ll have to do something with No. 4. If you have the type of job now where your schedule changes a lot, try getting a second job with flexible or unusual hours, like the overnight shift moving boxes around at UPS, delivering newspapers, or walking dogs.
5. Look for Other Sources
Borrowing from your 401(k) isn’t always advisable, but sometimes it can be a good idea. It depends on your age (if you are near or far from retirement), the size and scope of your debt and your other financial obligations. Time’s Money.com talks about some pros and cons of this option.
Raiding your savings account might be a good idea, but you should always keep some emergency funds available, so don’t use it all to pay off your debt. And realistically, not many people worry about debt and have money in the bank.
Could the Bank of Mom and Dad help you out? Loans from your parents typically come with low interest rates. However, depending on who your parents are, they might also come with long lectures and lots of nosy questions like, “Is that another new shirt?” so you have to decide for yourself if this is worth it.
This can not only help you get out of debt faster, it can help you save money. When you consolidate your debts, you have one monthly payment to make, and it’s usually at a lower interest rate.
You may not know how much you’re paying in interest on your debt now, but if you did, you might be shocked! So consolidating can help considerably.
7. Make Changes to Your Spending Habits
If you accrued your debt by racking up medical bills or student loans, you may still have to deny yourself some pleasures while you pay back your debt, but you likely don’t need to worry about your shopaholic ways.
However, if you:
- Use your credit card to soothe yourself when you feel anxious
- Buy yourself presents to cheer yourself up after a disappointment
- Feel like you must have the latest and greatest of everything
- Continually convince yourself that one more purchase won’t matter
- Feel pressure to compete with your friends and family for most/best possessions
Then you need to deal with these deeper-seated issues before you can ever expect to get out of debt. Repeatedly cleaning up the water without plugging the leak will not work in the long term. When you’re short on money, it’s easy to convince yourself you don’t have the funds to get counseling for your problems. But sometimes you can’t afford not to. However, before you spend your own money, consider these helpful sources:
- Your medical insurance plan may cover counseling.
- See if your employer offers an Employee Assistance Program.
- Look into free appointments or classes in your area in consumer credit counseling.
Do your own research online, identify some helpful strategies and see if you can make progress on your own.
Getting out of debt isn’t easy, but you can do it — and the faster you can do it, the better off you are. Implement our debt reduction strategies today, and look forward to a debt-free life.