10 Smart Ways to Get Out of Debt
Are you overwhelmed by debt and have no idea how to start tackling it? Not to worry. We have 10 simple tips to help you get back in the black.
Perhaps you've been relying on your credit cards to get you through unemployment, underemployment, or, truth be told, you simply have spending issues. Whatever the reason you find yourself overwhelmed by bills, bills, and more bills, you know you’ve got to make a change.
1. Get to know your debt
Depressing as the exercise might be, go through all your bills and see how much you owe. Chances are, you’ve been looking at each bill as it comes in and haven’t considered the full picture. Debts that should take first priority are those directly related to your ability to survive, such as mortgages or other secured loans like car loans. If you default on these type of loans, you can face foreclosure or repossession. Don't go there. Having your car repossessed could impede your getting to work at a time when you need to not only be working but, very likely, working overtime.
2. Prioritize your credit card payments
Be methodical in how you pay off your credit cards. Here’s one option to consider: focus most of your funds toward the one with the highest interest rate. This means making minimum payments on all your other debts and putting as much as you can toward the card with the highest interest rate. Repeat this process every month until the first card’s debt disappears. Then keep paying the same amount, but this time toward the card with the second-highest interest rate. Keep doing this until all debts are just bad memories.
You never know what a phone call to your creditors, explaining your situation, might do. Some creditors may work out payment plans if your troubles are temporary, such as if you are in between jobs. It's worth trying. They may take the view that getting some money is better than nothing.
4. Get a transfer deal
Transfer your higher-interest debt to a lower-interest card. Depending on how much debt you’re carrying around, you could realize significant savings by switching cards. While you will usually be charged a certain percentage for making a balance transfer, you will get a break over the long term as you work to pay off what you owe. But do the math and make sure that if you are unable to pay off the balance by the time the new card’s introductory period ends, you won’t be paying a higher interest rate than you do now.
5. Stop leaning so much on credit
If you have multiple credit cards and have a hard time keeping track of how much you owe on each one, pack them away for now. Large balances can fool you into thinking you have more spending power than you actually do. The rewards and points credit cards provide are beneficial only if you pay down your minimum balance every month. At this point, you need to focus on cash.
6. Create a budget
Now is the time to face the truth. How much do you have coming in, and how much is flying out the door faster than you can wink? Look at where your money is going – all those dinners out, pricey lunches, and brand-name clothes, on top of the usual minutiae like gas, groceries, utilities, rent, mortgage, and so on. Getting into deep debt is a reminder for learning to say “no” every now again and tweaking some of your habits. These are the places (e.g., those impulse buys at the register and the fancy boots you just had to have) where you will find the “extra” to pay more of your debt. You've heard “live below your means” a million times, and now is the time to adopt it as your mantra.
7. Turn off the noise about sales
Unsubscribe to all your newsletters and coupons. While it’s always nice to get a deal, you don’t want a measly 10% break to tempt you to the malls and cancel out any progress you’ve made in your debt pile. In order to stick to your budget, which in general means sticking to only the necessities until you can pay off what you owe, you have to avoid impulse buys and shopping urges. You’ll still need to temper some of your wants, but at least you can shut off the constant attempt by retailers to draw you into their stores and websites.
8. Set financial goals
It's easier to cut back and stay devoted to paying down debt if you have a bigger reason for doing so (besides paying off a financial institution). Are you planning to buy a house in five years? Get a particular car? Take an expensive vacation? Or retire at age 60? Having a tangible plan will give you courage when temptation calls and you feel like splurging.
9. Go moonlighting
If you want to speed up the get-out-of-debt process, try to supplement your income – as long as it doesn’t get you into trouble with your primary job. Consider part-time work, even if just for a while, until you can put a significant dent in your debt. Or, even better, turn your hobbies and skills into a side hustle that will keep your interest and help you pay your bills. If you're a gardening buff, seek out a job with a florist. If you’re good with computers, offer to help friends and neighbors with virus prevention and PC fixes on the side.
10. Be vocal about your plans
Now that you have a strategy for getting out of debt, don't keep it secret. Talk to your partner, spouse, trusted friends and family. Otherwise, you’ll have a harder time reaching your goals. Then, when you turn down invitations to go to the movies or an expensive dinner, they will understand why. Being up-front can also help your kids understand the effect of debt. You’ll need moral support as you fight that spending urge. Your inner circle can gently remind you to stay focused on the bigger picture – the day you'll be a bit closer to financial freedom.
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