The average American household has tens of thousands of dollars in debt. Between student loans, credit card debt and mortgage debt, having debt the money you owe can create a crippling situation to be in and the commonality of it can allow you to get 'comfortable' with being in debt. No matter how much debt you have, you can pay it off and become debt free.
Are you looking for the best way to get out of debt? Here are five tips and strategies that you can combine to jump start your debt repayment.
1. Be Honest About Your Situation and Start Developing a Plan
Avoiding your accounts won't make your debt go away. You should lay out all your information and add up how much debt you have and what the interest rates are from highest to lowest. Then, total everything up and figure out where you stand.
Decide how you want to start paying your debt back and which debt repayment method you should implement. Two of the most important debt repayment methods are the avalanche method and the snowball method.
The snowball method prompts you to pay off your debt starting with the lowest balances first to help motivate you to keep going, while the avalanche method allows you to focus on paying off debt with the highest interest rate first so you can spend the least amount on interest.
Whichever method you decide, choose something that is going to work best for your situation and motivate you to keep going.
2. Make a Budget and Stop Using Credit Cards
In order to get out of debt, you'll need to determine where all of your money is going and stop accumulating any additional debt. You can do this by creating a budget and listing out all of your expenses and sources of income so you know how much money you have to spend each month.
If you have credit card debt, remove your credit cards from your wallet so you won't be tempted to use them while you pay off the remaining balances.
3. Consolidate Your Debt
If your debt seems too overwhelming of if you're struggling to make payments, you can always look into debt consolidation to help simplify what you owe. Debt consolidation involves combining various different debt balances into one loan with one low interest rate.
If you have credit card debt from different companies with high interest rates or several student loans, debt consolidation may help you be able to manage your payments better so you can get out of debt.
While debt consolidation doesn't erase your debt, it can allow you receive a more manageable payment and have less of your money going toward interest and more going toward the actual principal balance. Our free comparison tool helps you determine if debt consolidation is right for you and compare quotes from various different lenders.
4. Start Earning More Money
Increasing your income is a great way boost your debt payments and get out of debt quicker. Paying only the minimum payment on your debt can take a long time, plus you will pay more over time due to interest.
You can ask your current employer for a raise or get a second job temporarily to boost your income. You can also sell items from your home, freelance your skills, walk dogs in your neighborhood or babysit for friends and family to increase your income.
Dedicate all the extra income you earn to make extra payments on your debt. Watching your balance decrease quicker when you make larger payments can help motivate you even more.
5. Change Your Habits
To pay off debt and keep yourself from getting back into debt in the future, you need to change your habits once and for all. It's important to use credit cards wisely and spend less than you earn each month so you won't go into debt.
Find affordable alternatives to your highest expenses and check in with your budget throughout the month to make sure you are on track. Also, start saving up for large expenses instead of using a credit card to make purchases.
Getting out of debt isn't always easy and it certainly isn't fun, but it's worth it. These options and strategies will help you change your spending habits, lower your interest rate through consolidation, and free yourself from debt so you can focus on other financial goals.