Tips to Get Out of Debt
Debt has a way of piling up faster than many of us realize. If you have a lot of high-interest credit card debt, for example, it can feel like you’ll never make any progress. Fortunately, it’s possible to get out of debt more quickly if you go about it in the right way. Plus, you could save a substantial amount of money in the process. Here are five strategies for paying off your debt.
Paying off debt can seem overwhelming, but it doesn’t have to be if you have a plan.
Knowing where your money currently goes is the first step. Then you can begin to cut unnecessary expenses and use the spare cash to pay off debt.
You’ll save money and pay your debt off faster if you start with your highest-interest debts.
A debt consolidation loan could help lower the interest rate you pay on your debt.
Create a Budget, If you don’t have a budget, you may not know if you’re spending more than you make. Budgeting, boring as it sounds, can be a useful tool for managing your money and planning for your future. You can use software and budgeting apps like Mint, You Need a Budget, or PocketGuard to make a budget, but you can also create an effective one with just a notepad and pen.
To get started, write down how much money you have coming in every month. Include income from your job and any other sources.
Next, note all of your recurring, fixed expenses. Include your rent or mortgage, utility bills, insurance premiums, minimum credit card payments, and groceries. Look at how much you typically spend on nonessential expenses, such as dining out or entertainment.
If you’re spending more than you’re making, or if there isn’t enough breathing room in your budget, look for areas where you can cut back to reduce your expenses. For example:
Carpool: If you drive to work, see if there is a co-worker who lives near you who would like to carpool. Or, create a profile on RideShare.org to find a carpool partner. By sharing the ride, you can save money on gas and car maintenance.
Shop with a grocery list: Preparing your own meals and eating at home is a great way to save money, but it’s smart to shop with a list—and stick to it—to avoid unnecessary purchases.
Reduce streaming services: If you’re paying for multiple streaming services, pick one or two favorites and cancel the rest.
Switch to a new cellphone plan: If you have an expensive cellphone plan, see if you can switch to a less costly version with your current provider. Or, shop around with different providers to find a cheaper plan.
Increase Your Income, When it comes to freeing up money, there are only so many corners you can cut. After creating a budget and eliminating some expenses, your next goal should be to increase your income. If a raise or promotion at your full-time job isn’t likely, look for ways that your skills could earn you extra cash on the side.
Also, consider changing your tax withholding at work. If you receive a tax refund year after year, you may be having too much money withheld, money that could be paying down your debts in the meantime. Ask your employer for a new W-4 form that you can fill out to reduce your withholding and increase your take-home pay. Failing that, when you eventually get your tax refund, earmark it for paying off debt.
Use the Debt Avalanche Strategy, When you have found some additional money to pay off your debts, you need to decide how best to use it. The most effective tool for many people is sometimes called the debt avalanche strategy.
With the debt avalanche method, you make a list of all of your existing debts, ordering them from the one with the highest interest rate to the one with the lowest. While you continue to make the minimum payments on every account, you put any extra money you have toward the account with the highest interest rate.
When your highest-interest debt is paid off, move on to the account with the next highest interest rate. Continue this process until all of your debt is behind you.
By tackling the highest-interest debt first, you will pay off your debts faster and save more money in total interest over time.