How to Get Out of Debt
When you're drowning in debt, paying off what you owe may seem impossible. However, if you employ some simple and smart strategies, you could soon regain your financial freedom. It will require some self-control and dedication, of course, but just imagine how wonderful it would be to leave your debt in the dust. If you want to learn how to get out of debt, use the tips below for help.
How to Get Out of Debt
Review your debts. Gather all of your recent loan and credit card statements, and make a list of your debts. Include the creditors, balances, interest rates, and minimum monthly payments. Write down any family loans or medical bills as well. Once you know the total, you can begin working toward that goal.
Build an emergency fund. If you don't already have one, build an emergency fund straightaway. This might seem counterintuitive (shouldn't all of your savings go toward your debt?), but forming an emergency fund will allow you to avoid accumulating more debt if an emergency does occur.
Create a budget. If you don't know where you currently stand, you won't be able to make specific goals. Track your spending to learn where your money is going, and then create a budget to limit frivolous purchases. The budget should be realistic but also restrictive, eliminating luxuries wherever possible.
Lower your rates. If you have student loans, consider student loan consolidation and income-based repayment plans. Refinance high-rate auto loans if you can, and call credit card issuers to ask if you can lower the rate on your current balance. Believe it or not, creditors are often willing to work with borrowers to help them repay their debts.
Determine what you can afford to pay monthly. How much money can you put toward your debt each month? If you can, pay at least the minimum amount toward each debt, and pay as much as you can toward the debt you want to target first.
Create a plan. So which debts will you tackle first? Many people choose to target high-interest debts first, which is mathematically logical because it will help you save money. However, others choose to target small debts first. A small debt can be paid off quickly, after all, and the joy of paying off a debt completely can be emotionally motivating. Use whichever method you prefer, but create a firm plan.
Earn some extra cash. If you're struggling to pay your bills with your current paycheck, you need to increase your income. Could you pick up a second job? Turn your hobby into a small business? Ask for a raise? Babysit? Mow lawns? Have a garage sale? Throw all of your extra cash toward your debt, and remember that every penny counts!