Start taking steps now to get yourself out of debt: track expenses and income; create a budget; prioritize debts according to importance; increase income sources by working more shifts or finding other means (side gig, additional shift work or seeking an increase).
Utilize cash instead of credit cards – using real money makes it more difficult to purchase items you don’t really require.
1. Make a budget
No matter if it’s credit cards or mortgage, getting an accurate picture of spending can help put everything into perspective. Begin by listing all sources of income such as paychecks and side gigs along with what expenses arise each month from spending habits such as debt repayment.
Assign each spending category a category such as food, shelter and utilities; necessities (clothing and transportation); and nice-to-haves (technology upgrades, entertainment or dining out). Take steps to minimize unnecessary expenditure.
Stopping yourself from spending on things such as clothes and concert tickets from Taylor Swift may be difficult, but doing so will speed up the debt payoff process and enable you to build savings for bigger purchases in the future.
2. Prioritize your debts
Debt can be expensive, so an effective debt management strategy requires channeling any extra money toward paying down balances. Prioritize each debt for maximum efficiency!
Pay off high-interest debts first as this approach, known as “avalanche method”, can save a substantial amount in interest over time.
Attracting motivation is another critical component in fighting debts effectively. One way to keep yourself inspired, and stay on your repayment plans, is writing out the reasons you wish to get out of debt – many find this helps them stick with them after having reached their goal of debt repayment.
3. Cut your expenses
Unlocking debt can be hard work and takes time, but there are steps you can take to make it simpler such as creating a budget, prioritizing debts and cutting expenses.
Start by adding up your monthly net income (the money left over after taxes are deducted) and subtracting all bills and expenses that arise each month.
Find ways to lower expenses, such as eating at home and shopping with a list. Reduce utility expenses by turning down the thermostat or taking shorter showers; and consider only using credit cards for emergencies and paying all other purchases with cash – this will save money and help keep you on the path towards debt freedom!
4. Make extra payments
If your credit card debt has reached overwhelming proportions, consider reaching out to creditors in order to negotiate lower monthly payments. If you have been making payments on time and ask nicely for one, they may offer lower rates as an incentive.
Another effective strategy for getting out of debt is applying extra money you have towards balances with higher interest rates – known as debt snowball – this saves on long-term interest costs and will bring much-needed relief.
Modifying the way you think about debt can also increase your success at eliminating it, says Morin. Negative thoughts about your ability to make payments could discourage and cause you to give up too quickly, leading you down a path toward failure.
5. Negotiate your debts
Debt relief can be an ongoing journey, so keeping yourself motivated along the way is important. Writing down each step on paper or using an app to track progress will give you a sense of achievement as you approach your goal.
Creditors and collection agencies (who often purchase delinquent accounts from original creditors for pennies on the dollar) have every incentive to negotiate debt settlements as this allows them to recoup their investments, save time, and cut losses through settlement. You should be prepared to offer an offer a lump-sum payment that falls less than your total debt amount owed.
As part of any negotiation process, you should keep in mind that any debt settled through negotiations may be reported on your credit report.