Getting out of debt is not easy, especially when your income is limited and you have a family to take care of. Sometimes it takes more than just saving a few dollars from each paycheck or even consistently saving for a rainy day. Your credit card debt is always at the top of your mind, keeping you up at night.
Debt might become an even bigger struggle in the future, if Treasury Secretary Yellen is correct in saying that interest rates might go up in the near future to prevent the overheat of our economy.
Luckily, there are strategies and easy ways to help you get out of debt without sleepless nights and before the interest rates go up.
- What Is Our Total Debt?
- How Debt Impacts Our Life
- Organize Your Debt and Bills
- Pay More Than the Minimum Amount Toward Your Debt
- Snowball / Avalanche Method
- Refinance Debt
- Find a Part-Time Job
What Is Our Total Debt?
According to Experian, the COVID pandemic has had a significant impact on the rise of economic anxiety, but that didn’t stop Americans from borrowing more. According to the study Experian conducted, the total outstanding U.S. consumer debt grew from over $800 billion to $14.88 trillion, which is a 6% increase in just a decade.
Financial health is a real deal, and you should take care of it just like your physical and mental health.
How Debt Impacts Our Life
Although debt might seem like nothing to worry about, you might start having continuous headaches or anxiety because of your debt if you’re not careful. It’s especially tricky because debt can actually encourage you to spend more. I know how counterintuitive this sounds, but it’s true.
Furthermore, debt costs you money. That’s what interest rates are, and the higher they get, the harder it is for you to get out of debt.
Another interesting point most people don’t think about is that you’re borrowing from your future self every time you take out a loan. This means that you might not be able to reach your financial goals in the future.
However, there are several ways to get out of debt without stressing yourself out.
Organize Your Debt and Bills
Before you start planning your debt-free life, you need to organize all of your debts and create a spreadsheet of all of your bills and loans. To make your paydown strategy successful, you have to be prepared and equipped with knowledge.
Review all of your bank and credit card statements, and note all of the significant recurring expenses, including loans, bills, and other fixed payments. Include monthly payments, total balance, interest rate, and all further important details. Have your credit card report open while making this list, so you don’t miss anything.
Pay More Than the Minimum Amount Toward Your Debt
Paying your minimum monthly fee to pay off your debt seems like a logical thing to do, but what if you can afford to pay more than that?
Go through your budget and see if there are any gaps or extras you can turn toward your debt. That way, you will save money on your interest rates and get out of debt faster than expected.
For example, let’s say you have a $15,000 balance on your credit card, a 17% APR, and your minimum payment is $450. By the time you pay it off, you will have spent around $5,500 in interest rates and taken about four years to pay it off.
Now, let’s say you have the same balance with the same minimum and the same APR, but you’re choosing to pay $550 instead of your minimum. You will pay over $1,000 less in interest rates, and it will take you only three years.
If you can afford to add that extra $100 to your monthly payment, you would be debt-free much faster and save money.
Snowball / Avalanche Method
If you’re feeling adventurous, you could try the snowball method to get out of debt. It is both simple and effective.
First, you need to figure out what your smallest payment is when you take all of your debts into account. Then, pay the minimum amount for all of your debts except for the smallest one. Put as much as you can comfortably afford toward that one. By snowballing your payments toward your smallest debt, you will eliminate it quickly and you can easily go to the next smallest debt and pay it off more quickly.
Though you focus on one debt at a time with the snowball method, it can be both rewarding and motivating to see your debts disappearing one by one.
Refinancing your debts is a great way to save money on lower interest rates, and it can help you repay your debt faster. Mortgages, auto and personal loans, and student loans can all be refinanced.
You can do this through a personal loan that might come with lower interest rates than your current debts. Those are called consolidation loans.
Find a Part-Time Job
Getting out of debt is a lot easier when you have a higher income. For example, if you’re currently working eight hours a day, you might want to squeeze in a couple of extra hours of work. You can choose to work overtime in your current company (providing it’s an option), or you can find something to work on online.
There are hundreds of online job positions open every day. Depending on your skill set, you can try different things. One option is to create a profile on a freelancing site, like Upwork, and try searching through job posts.
If you like writing, being a ghostwriter is a great way to earn extra money and work whenever you have the time. If your IT skills are great, you can easily find something that pays great money, like website design. Becoming a virtual assistant is also a great option if you love serving people, and if you’re not familiar with it, it takes minimal effort to get started.
Not exactly free money, but if you like what you do, are you even working?
Whatever it is that you decide to try, it is essential to stick to it. Whether you want to try the snowball method or you like the idea of getting a part-time job, the crucial thing is to be consistent and persistent, and you’ll be debt free in the blink of an eye.