8 Ways to Get out of Debt
According to an Experian, U.S. consumer debt reached a record high in 2019 at $14.1 trillion.
That was, of course, before the COVID-19 pandemic we’re currently experiencing. That number is expected to get much higher.
We stressed in a previous blog post the importance of managing your current debt during the coronavirus crisis. But you should also try to avoid getting into more debt, and if at all possible, paying down what you can.
Yes, this might be difficult for a lot of people. But believe it or not, it can be done. You just have to use a little creativity.
- Avoid getting into more debt
We know, we just advised paying down the debt you have if possible. But we’re not there yet. Right now, your focus should be about paying the bills you have and not accumulating more debt in the future by missing payments. If you had a significant amount of debt before the pandemic and you’ve lost your job during this crisis, you don’t want to get into a financial situation you’ll never be able to climb out of when this is all over.
According to David Mendels, a financial planner and professor at New York University, “Not all debt is created equal and not all debt is bad.” This means you need to prioritize the essentials like putting food on the table, keeping a roof over your head (assuming you haven’t worked out an alternative payment plan with your mortgage lender or landlord, something we covered in our last post), and paying your utilities. Credit card debt, student loans, and the other extra debt need to be paid as well, but they rank less important than not being able to feed your family or losing your home or car.
- Sell your car to reduce your debt
Speaking of your car, if you have a car payment and you’re desperate to get rid of debt, consider trading your car in for a less expensive option with a smaller car payment. Or, sell your car if you can and buy an older model with the money you make from the sale so you won’t have a car payment. Or, commute by bike or bus.
- Use the Snowball Debt Method
Make a list of all the bills you pay on a monthly basis. Then rank them from the highest amount of debt you owe to lowest. While paying the minimum payment on the other bills, make extra payments on your smallest bills first and work to pay them off, one by one. This is called the Snowball Debt Method. It’s all about baby steps, and it may take longer for some people than others to achieve. But once you pay off your first debt, you’ll feel empowered. Then, start on your next smallest debt, using the amount you would have paid on the debt you just paid off plus some extra if you can afford it. Pay it off and start on the next one. You see where this is going…
- Find a cheaper credit card interest rate
While your working on paying off your smallest debt first, continue to make the minimum monthly payment (assuming your credit cards are on the higher end of the debt list) on your balance required by the credit card companies. Don’t worry about paying off the balance until you’re financially able. If you need to, inquire about a lower interest rate with your credit card company. Or see if you can transfer your balance to a credit card with a lower APR.
- Cut out the extras to pay off debt faster
Do you really need all the streaming channels? What about that gym membership? Or your weekly Starbucks fix? Getting out of debt means making sacrifices. If you’ve got multiple streaming services, keep one and cancel the rest. Or, cancel all of them and watch YouTube and other free streaming video sites. Forego your gym membership and work out from home. Again, YouTube to the rescue. Instead of buying books, music, and movies, see if you can check them out from your local library. The point is, cut out what you can and substitute.
- Eat at home so you can make bigger payments
It might be tempting to go to dinner at your favorite restaurant or grab a quick meal out because you don’t feel like cooking. But eating out just once a week can cost at least $40 a month. Think of what you can do with that extra money? That’s right, pay extra on a bill using the Snowball Debt Method.
- Create a grocery budget
Since you’ll be cooking more at home to avoid spending unnecessary money eating out, you’ll need to create a grocery store budget and a list of the items you absolutely need and stick to it. Plan out your weekly meals so you’ll know what to add to your grocery list. Not only is it cheaper to eat at home, but it’s also healthier. Look for coupons at your local market to help with grocery expenses.
- Give back to your community
There’s nothing better to help you gain perspective than to help others who are in need. In this unprecedented time, it seems like everyone is hurting in one way or another. With social distancing, you may not be able to physically volunteer at a homeless shelter or at a local non-profit (or maybe you can), but you can still find other ways to help. If you sew, consider making face masks for others. Perhaps you can donate a little change to a local or national charity. Seeing the struggles of others not only helps you appreciate what you have but stepping up to make a difference just makes you feel good. And it helps keep your mind off your own problems.
Paying off your debt faster means taking baby steps
We mentioned this before but it’s worth repeating: Getting out of debt means taking baby steps. Setting smaller goals, as in the Snowball Debt Method, and meeting them takes time but with each debt you pay off, the closer to financial freedom you’ll be. It takes courage, determination, and discipline to get out of debt. But if you’re serious about it, you can do it.
To sum up:
- Prioritize the essentials to live – make sure you have food to eat, a roof over your head, and transportation.
- Use the Snowball Debt Method – Pay your smallest debt off first, then tackle the next smallest one, and work your way up.
- Cut out the extras – Cancel streaming services and membership, no more coffee shops or eating out. Take that extra money and apply it to paying off your debt.