This post was written by Tia of Financially Fit & Fab.
Let’s face it; debt is not fun. It can hinder you from achieving your dreams and affect your quality of life. Yet according to a study by CometFI, almost 80% of Americans are struggling to pay off bills, some of which include credit cards, student loans, personal loans, medical bills, auto loans, and mortgages.
The good thing is you don’t have to be in the red forever. With some dedication and hard work, you can give less of your cash to creditors and instead put more of it into your bank account. Check out these five steps to get started.
Step 1: Figure out how much you owe
The very first step to paying off debt is to figure out how much you owe. Unfortunately, so many of us get this amount wrong due to the interest and fees that accumulates with debt. You may have left college with $15,000 in student loans, but over time that amount has escalated to $20,000.
There are a couple of ways to figure out how much you owe. The best way is to list all of the debt that you have. Then contact each of the creditors by phone or online. Make sure you write down the amount that you owe and the interest rate of the debt. After contacting the creditors that you know you have debt with you should always check your credit report. Your credit report should be a fairly accurate listing of all of the debt in your name. Head to Credit Karma to view your credit report for free.
Step 2: Find a repayment method that works for you
Two of the most popular debt repayment methods are the debt snowball method and the debt avalanche method.
The debt snowball method was popularized by Dave Ramsey and has worked for thousands! The first step is to list all of your debts from smallest to largest balances. Then make minimum payments on all of your debts except the smallest. You want to pay as much as possible on your smallest debt until it is paid in full. Then go to the next smallest debt and put all of your extra money on that payment. Repeat this process until each debt is paid in full. This option works well because you will enjoy small victories as the smaller debts are paid off.
The debt avalanche method is very similar, but it will save you money along the way. The first step is to list all of your debts in order of the interest rate – highest to lowest. Then make minimum payments on all of your debts except the one with the highest interest rate. Once the debt with the highest interest rate is paid, then move on to the second highest interest rate. Since you are starting with the highest interest rate balances, you will end up saving money in interest in the long run.
Ultimately, both the debt snowball and debt avalanche methods are viable for paying off debt. It doesn’t matter which one you choose. Just pick one and stick with it!
Step 3: Cut your expenses
Cutting your expenses is one of the easiest ways to find extra money to pay towards debt. Eliminate anything that you no longer use like that unused gym membership or music subscription that you never listen to. You can also reduce some of your regular expenses by shopping around for better rates. Some regular expenses that can be reduced include car insurance, cell phone bill, and internet bill. Lastly, consider eliminating some expenses that you use but aren’t worth the cost anymore. For example, I ditched cable over two years ago and haven’t looked back.
Step 4: Add extra money to paying off debt
Want to pay off your debt even faster? Then it is time to add extra money to your debt repayment efforts. Extra money can come from a variety of ways like a bonus through work or your tax return. If you have the time, then consider getting a part-time job. I worked a part-time retail job for over two years, but it helped me pay off debt much faster!
There are many places to look for a side gig to make extra money. Most retailers hire for help around the holidays so now is a great time to start looking for a part-time gig. You can also try to find a job where you work at home. Just figure out your skills and put them to work. I’ve been able to make money at home selling things online and through freelance writing. The options are unlimited!
Step 5: Stop using credit!
The final step is the most crucial step of all! Stop using credit. Credit is not all bad because it can help you to advance your education and fund large purchases like a home; however, using credit cards regularly without paying them off in full is a bad habit. Once you have committed to not using credit anymore, take the credit cards out of your purse and leave them at home. Unsubscribe from any emails that tempt you to shop.
Paying off debt isn’t easy, but it is worth it. Once your debt is paid off the sky is the limit to what you can accomplish. Instead of paying your car payment you can use that money for a flight! Or you can put your money towards saving and investing so that your money can work for you.