How To Get Out Of Debt: 9 Strategies
Those are not small numbers. While income levels have also grown at a rapid pace, more than half of Americans somehow spend more than they earn. Naturally, debt becomes a means to make up the shortfall.
Paying interest on that debt is fine until things are manageable and incomes keep flowing in.
However, there are times when you realize that you may have borrowed a bit too much, or when you face an unexpected difficulty that affects your financial situation. You could face a health emergency, lose your job unexpectedly, or face a big repair bill if your car has a major breakdown.
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All of the above examples can throw off your finances considerably. You start living paycheck to paycheck as it gets tougher to keep up with the monthly payments. Or worse, debt becomes a big problem if you are unable to repay the interest payments.
If the latter happens, then you might be faced with two options – bankruptcy or debt settlement.
The problem with bankruptcy is that it will affect your credit score quite badly. Besides, you will have to engage in negotiations or go through legal procedures.
There are debt settlement services that you can engage with. However, they will cost you and you may have to deal with some paperwork and speak to people. You also have to do a lot of research and pick a reputed service to work with. All of this can be a time-consuming affair.
So, what else can you really do? If you ever wondered how to get out of debt, then we have listed below a few suggestions which can help.
Reign in the spending
Watch what you are spending your money on. If you need to write down your expenses or put it onto a computer, then do that. Whatever allows you to analyze your expenses and cut out on the non-essential stuff needs to be done.
You have to live on a bare-bones budget for a few months. Once you are out of debt, you can slowly restart the discretionary spending while following good financial habits.
The idea is to create additional cash flow for a specific period by cutting down expenses to only your essential expenses you must pay for.
Change your routine if you must
Everyone has their temptations. There are specific things or places that make us spend more money.
For some, it could be shopping at a mall, while for some others, it could be eating at a restaurant. Whatever gets you to pull out that credit card and splurge needs to be avoided, at least temporarily.
Change your driving route if that is what helps you to prevent passing by the mall. Build a habit of visiting the grocery store every week to keep your fridge stocked with food. That way, you won’t get the urge to eat out as much.
Get yourself to stay physically away from temptations.
Bonus money goes towards debt repayment
Did you get a raise lately? Are you going to receive any inheritance money? Perhaps it is March and you expect to get a tax refund.
Whatever “bonus” money comes your way, use it to pay off that loan. If not the full loan, pay it off partially. You need to be thinking about how to get out of debt every single moment of the year and using extra cash to pay down the debt.
Get rid of the flab
Let’s admit it, everyone has stuff that they don’t use or need anymore. People’s garages are filled with stuff that they could live without. Some folks even have self-storage units to haul extra things to, which costs a monthly fee for the storage facility.
Find such redundant belongings of yours and sell them. Do a garage sale or list the items on Craigslist. You may be amazed at how much non-essential stuff we hold on to.
Another way to cut down would be finding subscriptions to services that you might not be using anymore. These are all great ways to raise some quick cash that can be used towards debt repayment.
Find a part-time or side gig
Many of the methods mentioned so far have been about reducing your expenses. But another way to get out of debt quicker is to increase your income.
- Do a freelancing gig
- Get a part-time job in the evenings
A few hundred dollars of extra cash every month can create a significant difference to your finances. It can help you pay off the smaller debts so you can create momentum for the debt snowball method discussed next!
Follow the debt snowball method
The debt snowball method is all about creating momentum. To do so, you pay only the minimum amounts on your larger debts while using the excess cash saved to completely pay off the smallest debt first.
You then move onto the next smallest debt and pay it off while making minimum payments on the larger debts.
You repeat this cycle until you get to the largest debt left and focus all efforts on repaying everything off eventually. This method takes patience and persistence.
Try to negotiate lower rates
Give your credit card company a call and ask them for a lower interest rate. You might think that this won’t work, but it is quite common to call and negotiate the rates.
Besides, you have got nothing to lose by calling. If you have a positive track record and have made timely payments, then your chances of getting lower rates are quite good.
You can try the same technique with cable companies, internet companies, and landlords (for rent). Cite the rates that competitors are offering and try to get them to lower your bills to match competitor rates.
If your credit card company isn’t budging on the rates, consider doing a balance transfer to another credit card company.
The new credit card company may be willing to offer you a 0% APR for the first few months. All you may have to pay is a balance transfer fee. But the savings on lower interest rates may be worth it in the longer run.
Pre-pay your debt
If you are fortunate enough to have decent cash flow which allows you to pay more than the minimum payment or more than the monthly installment, then do so to get out of debt earlier.
The earlier you pay off the debt, the less you pay in interest costs, and the cheaper it is for you.
For example, if you have an auto loan where the principal is $10,000 and the interest component is $3000, then prepaying the loan would mean a principal repayment of $10,000 and an interest component of only, say, $2000.
So, instead of the car costing you $13,000 in total, you only pay $12,000. However, in all of the above, you first need to make sure that there is no pre-payment penalty.
Same idea with a mortgage. If you have extra money to contribute to the mortgage principal balance each month in addition to your normal payment, it will help lower your interest payments over time so the home costs less in total.
We hope that the above ideas and methods for getting out of debt allow you to move towards a debt-free life. As you can tell, it is possible to get out of debt, but you need determination and persistence.
Find the method that suits your situation the best and then stick to it. Get out of debt and live the life that you want. Comment below any debt stories or lessons learned from your own attempts at paying down debt. We’d love to hear them!
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