Getting out of debt is not the hardest thing you will ever have to do. It’s completely attainable and no matter how helpless you feel, you’ve got this. Lots of people struggle with the feeling that their debt is insurmountable. They feel like there is no way to fix the damage that’s been done. You may be embarrassed by your debt, or think that there’s no way anyone else has made this big of a mess. Don’t be. It’s not true. lots of people struggle the same way as you and lots of people, including myself have been able to get themselves out of it. Debt-free is a liberating lifestyle and it’s open to anyone willing to take it on. If you want to face your debt head-on and eliminate it for good, follow this DIY guide for how to get out of debt.
The first thing you need to do to get out of debt is to recognize the debt. There are a couple of important factors to understanding the situation you’re in. You may realize your in debt, but you may not be fully aware of the situation, so that’s where you need to start.
How Do You Start?
Start by assessing the debt you owe. Look at all of your outstanding balances. Look at the minimum payments. Pay attention to all the information including the interest rates and when your debt payoff is projected. Your credit card statements should include a projection of when your debt will be paid if you pay the minimum balance every month along with some suggestions for paying it sooner. You’re not going to follow the suggestions, but it helps to gain some perspective. You’ll be out of debt, much sooner than that.
How Did You Get Here?
Once you’ve got a grip on how much you really owe, it’s time to look back at why. You need to have a handle on where your income is going and why your payments are surpassing what you make. Only when you know how you got into debt can you learn how to get out of debt. It’s impossible to get out of debt if you keep spending more than what you make. You actually have to spend significantly less than what you make, in order to get out of it. Sound impossible? It’s not. You’ve got this.
Managing your money is all about negotiations. You’ll negotiate your debt payments, and when you’re out of debt, you will continue to negotiate. Money management is a skill you’ll acquire in becoming debt-free and it will actually continue to serve you as you build wealth. Here are a few ways you will negotiate what you owe and make it more clear for you how to get out of debt.
Reduce Your Payables
The easiest way to negotiate your debt is to look over your outgoing payments and trim the fat. Look at what you are making payments for that you really don’t need. Look at what payments could be reduced by shopping around, or contacting your provider. Things like cable, internet, insurance, etc. can be reduced with a phone call, or by shopping alternatives. If these payments are going on a credit card, stop adding them to the balance. Have important bills come out of your checking account if possible.
The important thing is to make sure that your payments going forward are less than the money you make. Include your credit card minimum payments and all necessary bills and don’t stop making cuts until your payments are lower than what you make.
Reduce Your Debt By Balance
Look at your debt and try to see if there is a way you can pay it off more quickly by reducing the balance. Contact each credit card company you have a balance with and try to negotiate a lower balance. Don’t worry about your credit score. Lots of people are concerned with their creditworthiness going down. If that’s your concern, you’re already thinking about getting into debt again. Your score will improve with time as you live debt-free. In the meantime, focus on what’s best for your current situation. If your lender agrees to a reduction, they will establish a payment plan. Once you agree on a plan, ask to have it sent to you in writing. It’s also smart to always write down names when speaking to anyone on the phone. Keep a pen on hand so you can do that as well as record confirmation numbers, balances, and monthly payments.
Reduce Your Debt By Interest
Another thing you can negotiate is your interest. This is where your credit score is more important. If by chance your credit has improved since you started using a card, or took out a loan, you may be able to get the lender to reduce your interest rate, which is a big help. Interest works against you while you try paying down your debt. The higher the interest, the more gets tacked on to your balance each billing cycle.
Another way to manage your interest is with a balance transfer. You may be able to qualify for a card with a 0% introductory rate. If you go this route, be sure of a couple of things. Know the introductory period of the promotion, and know the interest rate after the promotion ends. Do the math to figure out if you can afford to pay off the balance before the 0% interest rate disappears.
Once you’ve done everything you can to negotiate your debt, the next thing to do is negotiate your income. You may or may not need to do this. Just know that if you do, it will fast track you to paying off debt sooner. The more you make, the faster you’ll pay off what you owe. If you work hard and you prove yourself at work, you may be eligible for a raise or a promotion. Consider your career and where you see yourself at work in the next five years. If your job is something you’re invested in and you would like more responsibility, communicate that to your manager and get some perspective on your current potential. If you need to improve your income right away, ask for a raise.
Even if you qualify for a raise, it’s not always possible, but if you still need to make more money you can. You can search for a higher paying job, for a start, or you can take on an additional temporary job to make some extra cash and get the ball rolling. The best way to quickly make some extra money is to sell things you have to get cash in hand. Even if you sell things you own for less than their supposed worth, you will benefit better from the money. Another thing to try is turning a hobby into a side gig.
Now you have less money to pay out and possibly even more income than you had before. with a wider gap between what you make and what you owe each month, you are ready to obliterate that debt. Now that you have a budget (the margin between what you spend and what you make), I have three crucial tips that really show you how to get out of debt all on your own.
Commit to a Spending Fast
This is where the rubber meets the road. You need to commit to getting yourself out of debt for good. That means putting a freeze on spending. Look at it this way: as long as you have debt, you have already spent whatever it is you have to spend. You need to catch up before you can loosen up again. It’s also important to realize that you have debt because of poor spending habits that you need to break. The only way to do that is with a reset of your money management programming. A Spending Fast is taking a break from spending in order to cleanse yourself of your old habits and keep your debt from fighting back while you pay it off. Make a list of things you buy using your bank and credit card statements and divide them up into needs and wants. Needs are necessities and they are exempt from the spending fast. Everything else has to go.
Create a Debt Hitlist
Once you’ve committed to no longer spending your money on nonessentials, you can go about arranging your Debt Hitlist. I go into further detail about this in my book The Spending Faster’s Guide to Debt-Free Living. You can also download my Spending Fast Boot Camp for additional help and motivation when things get tough. To create a Debt Hit List prioritize your credit card debts and loans in order from highest interest to lowest. This method is different from the “Snowball Method” which prioritizes your smallest balance. The Debt Hit List is designed to knock out debt the fastest. Think of it as the “Avalanche Method“.
Pay the minimum balance on all of your debts, but target the one with the highest interest and put whatever money you have left at the end of the month into that account. It will be a rough start as you combat the interest, but soon you will gain momentum and the debt will be gone. Next, roll that payment over onto the next creditor on your Debt Hit List until the list is gone and so is your debt.
Make a Timeline for Paying Off Your Debt
Use the balance and the amount you have leftover to pay each month to determine a timeline for when you would like to be debt-free. Use that timeline to stay on track and remain focused on the end result when times are tough. Follow these steps on how to get out of debt on your own and you will be debt-free in no time!
In the comments tell us your favorite tips for getting out of debt!