You’re drowning in debt and unsure of where to turn. You feel like you’ve tried everything, but you run into one roadblock after the next. Guess what? You’re not alone.
If you have thousands of dollars in debt and feel like giving up, don’t. There are a variety of steps you can take — many that you probably haven’t tried — that can put you on the path to financial success. In the slides below, we’ll outline what you can do to wipe out up to $10,000 of debt (and maybe even more).
List Out Your Debts
You can’t wipe out your debt until you know what type you have. List out every last debt — regardless of the balance — to ensure that you fully understand your situation.
Once you have this list in front of you, collect all documentation related to each type of debt. For example, if you have $5k total in credit card debt, collect your most recent statements. It’s here that you’ll find additional information, such as payment due dates and how long it’ll take to eliminate the debt if you only pay the minimum.
Make Note Of Individual Balances
There are several strategies you can employ to wipe out debt, with many of them driven by the balance associated with each type. This is why you should write out the balance of each debt alongside the type. Here’s an example of what you might include in your list. “Credit card debt: $5k, Student loan debt: $2k, Personal loan debt: $2k, Car loan: $1k.”
Knowing your total amount of debt is important, but don’t forget to break it down individually as well. This will help you implement the right strategy.
Know The Interest Rate And Terms
There’s more to your debt than meets the eye. For example, you may have $5k in debt on a single credit card. Easy enough, right? While this is the amount of money you owe, it’s critical to also understand all elements of your debt.
This includes the interest rate and the term (how long to pay off the debt if you only make the minimum payment). The higher your interest rate, the more money you’ll pay over the long run. And in regard to your term or minimum payment, knowing this will help you budget accordingly.
Don’t Wait Another Day to Get Started
“I want to get out of debt as soon as possible but I can’t seem to find a plan that works for me. There’s no hope.” Does that sound familiar to you? You need to take action if you want to wipe out your debt. Simply dreaming about it isn’t going to get you anywhere.
Rather than wait until tomorrow (or next week) to get started, take action today. Even if you don’t make any progress toward paying down your debt, getting organized will give you peace of mind.
Free Up Money In Your Budget
Sure, you’ll eventually wipe out your debt by paying the minimum, but you want to make progress in a hurry. You don’t want to wait around forever. And that’s why it’s critical to free up money in your budget.
For example, if you can cut out $200 in entertainment expenses each month, such as dining out and going to the movies, that’s $200 you can put toward your debt. Over the course of the year, this is $2,400 you would have otherwise spent on something else… something that didn’t have a positive impact on your finances.
Put All Extra Money Toward Your Debt
How much money do you have leftover at the end of the month? What do you typically do with this cash? It doesn’t matter if it’s $100 or $1,000. Consider the benefits of putting it toward your debt. This is much better than frivolously spending the money and having nothing to show for it in the end.
It’s up to you to decide if all your leftover money should go toward one debt, or if you’re better off spreading it around.
Know Your Credit Score
This doesn’t sound like a big deal, but it can impact the way you pay down your debt. For instance, if you have an excellent credit score, you’re more likely to qualify for a home equity loan or personal loan that allows you to consolidate your debt. Just the same, a high credit score puts you in a position to obtain the best balance transfer credit card.
Conversely, if you have bad credit, you can take steps while paying down your debt to boost your score.
Gain Confidence Early On
It’s easy to give up when there is no end in sight. That’s why it’s so important to gain some confidence early on. One of the best ways of doing so is to completely eliminate one of your debts. Maybe you have one credit card with a small balance – such as $250 – and one with a larger balance, such as in the $2,000 range.
The best way to gain confidence is to pay off the smaller debts first, as this shows you that you’re capable of making progress.
Use A Balance Transfer Credit Card
If you have more than one credit card with a balance, it’s time to bring it under the same roof. A balance transfer credit card allows you to do just that — it saves you money and can also make your credit card debt easier to manage. Here are some things you need to know.
Most balance transfer credit cards have a fee of approximately three percent of your balance. You’ll receive an introductory zero percent interest rate, typically for 12 to 24 months, when you transfer a balance. Depending on your amount of credit card debt, you may not be able to consolidate it all through a balance transfer.
Use a Debt Consolidation Loan
Do you have several types of debt that you’d like to consolidate? Just the same as a balance transfer credit card, doing so can save you money on interest while allowing you to more efficiently manage the debt.
Debt consolidation loans come in many forms, such as a home equity line of credit and personal loan. Find the one that will work best for you based on the type of debt you have, your credit score, and the rate you qualify for.
Pay Off Debt By Highest Interest Rate
Start by paying off the debt with the highest interest rate and then work your way down the ladder. For example, if you have a credit card with a 20 percent interest rate and a personal loan at six percent, start by knocking out your credit card debt.
With this strategy, don’t concern yourself with the actual balance. Instead, focus on something more than the interest rate. Generally speaking, this approach will save you the most money over the course of your debt elimination plan.
Pay Off Debt by Smallest Balance
Another strategy to consider is paying off your debt starting with the smallest balance. This isn’t the best way to save money on interest, but it’s the perfect solution for anyone who wants to experience immediate progress.
As you work your way up from smallest debt to largest, you’ll find that it takes longer to eliminate debts. Even so, as you make progress, you’ll realize that you’re on the right track. And that’s typically enough to keep you motivated.
Use Big Chunks Of Money To Make Real Progress
There is no better feeling than coming into a big chunk of money. Maybe it’s the result of a bonus check or commission payment at work. Or maybe you win a few thousand dollars on a lottery ticket. Or perhaps you get that large tax refund you’ve been dreaming of.
It’s tempting to use this money for something more exciting — such as a big-screen television or tropical vacation — but first, consider the impact it could have on your debt. You may not have seen this money coming, but putting it all toward your debt can accelerate the pay off process.
Get a Second Job (Use all the Money to Pay Down Debt)
If you don’t earn enough money from your primary job to wipe out your debt, ask for more hours or pick up a second job. For example, if you work as a customer service representative by day, you could work as a virtual assistant by night.
The money you earn via your second job can be put toward your debt, which allows you to more efficiently work toward your goal. When you reach your goal of being debt-free, you can then decide if you want to keep your second job or leave it in the dust.
Negotiate With Creditors
You don’t necessarily have to pay off all your debt without any help. Some creditors, depending on the circumstances, may be willing to negotiate your debt.
Take for example medical debt of $2,500. If you can afford to pay a lump sum of $1,500, communicate this to your provider to see if they’ll take you up on your offer. Many creditors are willing to take what they can get up front, as opposed to hoping that you make good on all the debt over the long run.
Don’t Add to Your Debt Load
One of the biggest mistakes you can make is adding to your debt load when you’re actively trying to pay off your debt. For instance, if you pay off $500 in credit card debt each month but add $400, you’re really only making progress $100 at a time.
If at all possible, set the goal of avoiding additional debt while you’re working your plan. Once your debt is gone, you can then review your situation to implement a plan for preventing a similar debt problem in the future.
Set Short and Long Term Goals
This goes along with maintaining a high level of confidence. With short and long term goals in place, you’ll always have something to chase after. And when you reach it, you’ll feel good about the path you’re on.
The key to success with goals is ensuring that you’re realistic. For example, setting a goal to pay off $10k in debt in one month is not realistic for most people. So, when you fall short, you’ll begin to question your approach and may even give up altogether. Set attainable goals, track your progress, and reward yourself when you reach them.
Track Your Progress
You know you’re making progress every time you make a payment toward your debts. However, you should still track your progress, as this gives you confidence and helps keep you on track. Create a basic spreadsheet for tracking your balance due and recent payments.
With each passing month, you’ll see your situation improving, which will give you even more reason to continue to follow your strategy. Best yet, when you finally pay off a debt, you can cross it off your spreadsheet entirely. Talk about a happy day!
It’s a last resort, but it may be something you consider if there’s no other way to eliminate your debt. Both Chapter 7 and Chapter 13 bankruptcies are designed to help you reduce or eliminate some or all of your debt.
There are both pros and cons of filing for bankruptcy, so compare the finer details before you proceed. It’s an option for some, but don’t consider it the easy way out. There may be a better way to reach your goals.
Don’t Stop Short of the End
Paying off any amount of debt is easier said than done. Even with a sound plan in place, you’ll still run into challenges along the way. However, if you give up before you reach the end, you’re selling yourself short.
Keep your head down, follow your plan, and watch your debt go away one dollar at a time. Even if it takes longer than expected, you’ll eventually reach your goal – and that’ll give you a reason to celebrate.