Debt consumes most of us, and it’s a problem for many. In fact, according to Time Magazine, 73% of Americans will die with debt, with the average total equaling just over $61,000. Chances are you don’t want to spend your hard-earned money paying off debts, so it’s a good idea to get ahead of the game. However, for those who live paycheck to paycheck, the dream of getting out of debt may seem like it’s far-fetched; however, it’s actually a reality you can achieve. If you have any type of debt whatsoever, from credit cards to loans, then here are five tips you must use to help you get out of debt.
1. Create a budget.
The very first thing you must do is create a budget. This will help you see exactly what expenses you have as well as how much money you have coming in. Be sure to list all your expenses on your budget, not just your debts. This includes any monthly payments you make to gyms, utility companies, etc. After it’s all down, see how much you spend versus how much you bring in. If you tend to spend more every month than you bring in, then you’ll need to cut some ties and make some changes. However, if you bring in more than what you owe, you can use this extra cash to pay down your debts quickly.
When creating a budget, it’s important to give every dollar a job. This way, there’s no “extra” money lying around. For instance, determine which paychecks will pay for rent, utilities, groceries, leisure activities, etc. and assign the money to these expenses. If you have money left over, then be sure to assign that extra cash to paying down your debts.
2. Generate extra money.
If you don’t bring in any extra money to put toward your debt, or if you just want to be diligent about paying it off early, then you’ll need to generate some extra money. This can be done in a variety of ways. For instance, maybe you can get a second job and put that paycheck entirely to your debts. If that’s not possible, try finding a side gig you can do, such as babysitting, mowing lawns, walking dogs, etc. If you have a skill, such as sewing, graphic design, or photography, then you should try to sell your services. Finally, there’s always purging. Go through attics, closets, basements, and garages to sell clothing, toys, accessories, furniture or even to sell car parts and put that cash toward your debt.
3. Consider the snowball method.
Dave Ramsey is a popular financial expert who has helped plenty of people get out of debt, and his most popular method is the snowball method. Through this method, you list all your debts in order from least to greatest. Then, you focus on paying off that first debt by putting all your extra cash toward it and just paying the minimum amount on the other cards. Once you’ve paid off the first debt, apply all the money that was going to the first debt to the next lowest debt. Continue to do this “snowball” until you’ve rolled all your money into paying off the highest debt.
4. Consider refinancing.
Sometimes debt seems too hard to get out of because you have high payments or high interest rates. However, there’s always the option of refinancing your existing loans. Not only may you be able to get a lower payment, but you may also snag a lower interest rate that could save you money over time on your loan. Talk with your lenders and see if you’re eligible to refinance your loans.
5. Change your spending habits.
If you’re trying to get out of debt yet still want to put expensive purchases on your credit card, then debt will always be in your future. If you truly want to get out of debt, you need to make spending habit changes that you can actually do. If this means hiding your credit cards away, then that’s what it will take. Create a budget that relies only on cash income and make adjustments to make it work.
Being in debt is stressful, and it’s a good idea for you to use these tips to get your financial world back in order. Understand that getting out of debt will take time, but the more you can focus on it, the better success you’ll have.