If you have debt, it can feel hopeless. But you can get out of debt, and it’s easier than you think.
Determine The Total Amount
Before you can dig your way out of debt, you need to know where you currently stand financially. It’s terrifying to sit down and total up just how much debt you’re in, but that is the first step if you want to pay off your debt. Make a list of all of your outstanding debts and the interest rate on each. The best way to view your total debt are utilizing programs such as Credit Karma or Experian.
Create A Plan & Build a Budget
Paying off debt is a process, and there are several steps. These steps can take a while to accomplish. But until you do, it’s incredibly difficult to save money for your future.
A budget can help you understand, and create a plan, for where your money is going. And this is where you can start to figure out how to live within your means to avoid accumulating new or more debt in the future. If you have one job, simply look at your net paycheck and multiply the number by how many times you’re paid each month.
Next, tally up necessary expenses. These might already include debt payments such as your student loans or a car payment. They can also include rent, utilities, insurance payments, food, and so on.
Subtract this total from your income and what you have left represents the money available for discretionary spending. If the amount of money you’re spending on discretionary expenses exceeds the amount you have available, you’ll likely need to make some adjustments to how you spend.
To pay off debt, focus a portion of the leftover available income on debt payments.
Choose A Method
The Snowball Method:
You prioritize the debts according to the dollar amount, least to most. You use every dollar you can spare to paying off the smallest debt while paying only the minimum payment on the rest.
When you pay the first debt off, you use the money you were paying on it along with every spare dollar to pay off the next in line while continuing to pay only the minimum payment on the others. So on and so on until all the debts are paid.
One downside to the snowball method is that while targeting your smaller debts first, you may be holding onto your higher interest debts for a longer period of time.
The Avalanche Method:
To use this method, you would list your debts in order of highest interest rate to lowest. Once again, commit to making minimum payments on all of your debts first.
Then make any extra payments toward your highest interest rate debt. As you pay each debt off, move on to the next debt with the highest rate. The debt avalanche method minimizes the amount of interest you pay as you work to get debt-free, potentially saving you money in the long-term.
The avalanche method will save you the most money because it saves the most on interest.
That said, the snowball method can be more satisfying especially if you have a few debts that are for relatively small amounts. Killing off those little debts can be motivating and give you an extra boost to get the bigger ones paid off.
You could even use both methods. Start out using the snowball to get a few debts out of the way and a feeling of accomplishment and then switch to stacking, so you save more money on the remaining debts.
Get A Balance Transfer Credit Card
A balance transfer card is a credit card with a 0% APR introductory period. You can find cards with 0% interest for six to 24 months.
If you’re approved for one of these cards, you can transfer the balance from a high-interest card to the new card. During the 0% APR period, all of your payments go to paying off the principal because you aren’t accruing interest.
It takes a lot of discipline to get debt-free. Setting measurable and achievable goals can help you stay on track. Digging yourself out of debt can be a challenging process, but with a well-crafted plan and discipline, it’s definitely achievable.