We live in a time in history where more people find themselves in debt than ever before. According to Credit.com, about 80% of Americans have some sort of debt. EIGHTY PERCENT. Yes, many of those people have “good” debt, such as a mortgage. But many, many others are holding on to other types, such as student loans and credit card debt. Debt can be crippling: it can suffocate relationships, be emotionally tolling and financially limiting. Getting out of debt is always a good thing and something you should have as a goal for your family. Freedom from debt is perhaps one of the most fulfilling and here are 8 ways to start on the journey of paying it all off.
1. Understand Your Debt
If you’re like me, you cringe when the credit card bill comes in the mail. I absolutely hate looking at it, because somehow I think it will be less painful not knowing. However, if you plan to pay off your debt, you need to know where each and every penny is going. Gather all your student loan payments, credit card bills, mortgage statements, car loans, make a list of people who you owe money to and all the other places you know you are in debt. You are not doing yourself any favors if you purposely are not including that credit card you KNOW has a high balance, especially if you are hiding it from your spouse. Get out a sheet of paper or open an Excel document and put it all down. It’s only when you truly know the scope of your debt that you can begin to overcome it.
2. Make A Plan And Stick To It
There will always be reasons not pay off your debt: a lost job and lower income, that trip you’ve been wanting to take, just one dinner out to reward yourself for something, needing to save money instead or just simply living paycheck to paycheck and having no extra income. If your goal is truly to pay off debt, you have to make a plan on how you will do that and stick to it. There are countless methods, such as following Dave Ramsey or using the High Interest method. Find one that works for your financial situation and make a commitment to stick to it.
Paying off debt means you have to make it a priority in your monthly budget. That will most likely mean sacrifices in other areas of spending. Only you and your family can determine what areas you should trim, such as cable bills, trading in a car for one you can pay in cash or not eating out. Often times we think we can just cut back without paying much attention to it, but you really and truly need a budget to pay off debt effectively. You will be surprised as you add up all your expenses, and see all of your current costs. Writing something down gives you exponentialyl more power to actually follow through with something, so do yourself a favor and have a written, family budget that everyone can follow.
4. Get Credit Counseling
Sometimes you really need the assistance of a professional, and that’s where credit counseling can help you. The goal of credit counseling is get you on the path to financial freedom through budgeting and the intermediary work between your creditors and your credit counselor. Many times your counselor can work out payment plans and stop legal action on your behalf, and all at little to no cost to you. You can find more information about credit counselor and how to find one in your area by visiting the National Foundation for Credit Counseling.
5. Talk To Lenders
A few years ago, I missed a payment on my credit card because I didn’t see the reminder email. I was shocked at the $40 fee that resulted, which was more than my minimum payment amount! I called my credit card company and told them what happened and they immediately refunded my late fee on the spot. You would be surprised at how amenable your lenders can be if you simply call and talk about your options. You may have options to refinance, consolidate loans, waive fees and restructure your payments. All of these things may make it more manageable for you to stay on track and pay down debt, instead of giving up all together. It’s worth a phone call!
6. Extra Income
It’s not always possible to get a side or second job, but if you can you will see dramatic reduction in your debt. Even if you’re only bringing in an extra $150 a month and you are putting it all towards paying off your debt, that’s still $1800 a year you’ve paid off! Consider selling items you no longer need or offering your services for a fee. The important part is committing to using that side income to go straight towards debt. It may require some diligence and self-restraint, but the result of financial freedom will be worth it.
7. Go Cash
Ever noticed how easy it is to pay for things using a debit or credit card? Like my situation with the credit card bill, “ignorance is bliss.” Consider changing the way you pay for every day purchases to cash only. I personally take out an “allowance” that covers most of my daily expenses like groceries, dry cleaning, hygiene products and other odds and ends, at the start of each pay period. I use my debit card for gas and other large purchases, but those are always planned well in advance. You will think twice before whipping out that last $20 bill on a Wetzel’s Pretzel, if you know you still need to hit the grocery store and pick up supplies for dinner! Having the physical reminder of just how much things cost, such as cash in your wallet, can help you spend less.
8. Automatic Payments
When I get my paycheck, I think of all the fun things I get to do with it, such as buying my daughter something new or going shopping. Of course, I have to pay my bills too but those aren’t as exciting. You may feel the same and sometimes even put off paying down your debt items or sticking to the minimum payment just so you can afford that new shirt. A good way to force yourself into reducing debt is to set up automatic payments that will happen rain or shine. You will have less opportunity to blow money on a “want” and not a “need,” and you debt will continue to lower. You just need to be sure to monitor that your payments come out on your paydays, and that you adjust them accordingly for major changes in income, such as a lost job.
Reducing debt can be a long and tedious process- much more so than getting in to debt in the first place. Not only is getting out of debt a healthy habit, but you are teaching your children how to manage their money, pay up to what you owe, and live within your means. No debt is too big to start working on, so what are you waiting for?