Are you up to your eyeballs in interest payments, negative account balances, and credit card bills on the counter?
When you’ve accumulated too much debt, the pressure to pay can be crushing.
Between credit cards, student loans, car payments and more, the average American now has $38,000 in debt, not including home mortgages.
Even so, this doesn’t have to be your story.
If you’re ready to kick your debt to the curve and reclaim your financial freedom, read on. Today, we’re sharing seven tools and tips that can help you move from the red to the black, one successful step at a time.
Ready to learn more? Pick up that calculator and let’s get started!
1. Know What You Owe
Before you can climb out of it, you need to know exactly how deep you’re in the hole.
Unless you have a firm grip on how much you owe each month, as well as how much interest you’re accruing, it can be impossible to take control of your finances.
Even when they know this, most people still put off this step—and we get it! It can be disheartening and overwhelming to stare at those numbers square in the eye. Yet, you’ll find that when you take the time to organize this data, it loses much of its intimidation.
Start by gathering all of your account statements for each month. If you pay online or opt for an automatic draft, you might need to call your creditors for this information.
Next, calculate the following figures:
- The total amount of all debts
- The interest rates
- The payment due dates
- The monthly minimum payments
Using this data, you can then calculate how long it will take you to pay off all of your debt if you only make the minimum payments required each month.
Is it fun to crunch these numbers? No, but it’s necessary. Moving around in the dark won’t get you anywhere!
2. Stop Borrowing
Do you use your credit cards to pay for luxuries and experiences you don’t need? Or, are you used to taking out personal loans every time money gets tight?
While it can be tempting to live your life on borrowed funds, you’ll be hard-pressed to pay down your debt while you’re still doing so. That said, it’s time to quit borrowing to the greatest extent possible.
What does that look like?
It means no more swiping your card after a shopping spree. It may even mean cutting out frivolous and unnecessary purchases altogether. A few easy places to start include:
- Magazine subscriptions
- High-priced coffees and treats
- Expensive dinners out
- Monthly box subscriptions
It also means no more new credit cards, and only using the ones you do have to buy absolute essentials.
3. Pay More Than the Minimum (Wisely)
Credit card minimum payments aren’t designed to get you out of debt. It can be nearly impossible to get back on your feet if you’re only paying that small amount each month.
Why? Although these minimums can feel like crushing burdens when the due date rolls around, they only make a tiny dent in your overall debt.
Though it helps to pay more than that amount, don’t just start randomly throwing excess money at your bills. Instead, take a more strategic approach.
There are two routes you can take in this situation.
Debt Snowball Approach vs. Debt Avalanche Approach
First, there’s the debt snowball approach.
With this one, you’ll pay the minimum monthly amounts on each card, then allocate any leftover money to pay off the debt with the smallest balance first. This way, you can get those little stragglers out of the way to focus on the next-biggest debt, and so forth.
Then, there’s the debt avalanche approach.
When you go this route, you’ll pay down the debt with the highest interest rate first. While this strategy can take longer to complete, it often offers greater cost savings over the debt snowball option.
Both options are viable ways to lower your debt over time. While the debt avalanche approach can save you the most money, it does have the longest timeframe. As long as you’re establishing some kind of repayment strategy, you’re already on the right track!
4. Establish an Emergency Fund
Wait, you’re already stretched to the limit trying to keep up with all of these debts. There’s no way you can start saving money at this time, right?
In reality, this could be the most viable way out.
Saving up just $1,000 in an emergency fund means that you’ll have money to cover your basic needs if a disaster strikes. Otherwise, what would you do?
That’s right: You’d go into debt even more.
It might be tough to save this much, but if you want to get on top of your finances as soon as possible, this is a smart place to start. You don’t have to save all of your paychecks into this account, but strive to get to that $1,000 mark.
For most people, this is enough to help them weather a short-term financial setback without the need for additional borrowing. Once you’ve met that goal, celebrate and start putting any extra monthly funds back into your debt repayments.
One last thing to keep in mind is to reserve the emergency fund for exactly that: emergencies. Resist the urge to transfer those funds to your checking account every time you run short on cash.
5. Earn a Side Income
Of course, another way you can climb out of debt is to take on a second job. Earning a supplemental income means you can put more money toward your balances each month.
Research shows that nearly half of Americans now have a side hustle. Much of this is attributed to the rise of ride-share services, grocery delivery programs, and the rise of online freelance gigs.
If you have the time in your schedule, think about any opportunity you have to earn a little more money. As you’re brainstorming, consider your skills and talents as well as practical opportunities in your neighborhood.
For instance, if your children attend preschool, inquire about part-time teacher assistant jobs in the building. Live in a big neighborhood? Advertise house sitting or dog walking help for busy families.
In many cases, this will require tapping into your local resources to find out where openings and needs exist. It might take a little time, but it’s worth the effort if you can earn a few hundred bucks a month or more.
Especially if you perform this step in tandem with cutting frivolous spending, you’ll be surprised at how much money you can save.
6. Negotiate Your Interest Rates
No one enjoys getting on the phone and talking to their creditors. This is especially the case if you owe them more than you’d like to admit.
However, if you’re struggling to pay down your debts, a quick five-minute call could make a world of difference. Explain your circumstances in brief but sufficient detail, and you might get a sympathetic ear.
In some cases, you may be able to negotiate lower interest rates or better payment terms with your creditors, saving you a substantial amount of money each month.
One of your best talking points? If you have a history of responsible payments, be sure to mention this. While these calls don’t always work, they’re worth a shot.
7. Leverage Debt Consolidation
You’ve tried all of the suggestions on this list, but you’re still feeling crushed by your overwhelming debt. Sometimes, doing it on your own isn’t enough.
In this case, debt consolidation can help.
These are designed to roll all of your myriad debts into one manageable monthly payment. In most cases, this payment will carry a lower interest rate than you’re used to paying.
As a result, you can cut your short-term costs and start saving for the long term. You can also establish a more effective budget and start paying more than the minimums when you don’t have the weight of surmounting interest on your shoulders.
While many debt consolidation solutions will require that you have an excellent credit score to qualify, this isn’t usually the case with debt consolidation. As long as you can prove that you have a regular income and can pay off your debts within five years, most issuers are willing to work with you.
Too Much Debt? There’s a Way Out
When you’re struggling with too much debt, it can feel isolating. You might think you’re the only one in the world going through this issue, though nothing could be further from the truth.
When you’re ready to tackle your debt once and for all, we can help. We’ll match you to debt consolidation and personal loan opportunities that meet your specific needs, so you can look to the future with confidence.
Go here to see your personal offers and get started today!