Debt Free By End of 2023? 8 Steps To Get There
If you have a large amount of debt, you’re not alone. According to CNBC, the average American has $90,460 in total debt, which may include accumulated amounts from credit card debt, auto loans, student loans, mortgages and other personal lines of credit. The pandemic didn’t help matters either, as a turbulent economy resulted in most households adding around $1,700 in debt over the past couple of years, per Money Geek.
But, if you’re looking to climb your way out of debt, the good news is there are several ways to do so — and reach a debt-free milestone by the end of 2023.
1. Have a ladder strategy (or the snowball effect)
One great, tangible way to plan for paying down debt in 2023 is assessing the different kinds of debt you have and the most practical way to tackle them one-by-one. A ladder strategy is ideal — for example, rank debts by which ones hold the highest interest rate and tackle the most damaging debt first.
Or, if that’s too overwhelming, focus on the smaller balances first. Once one is paid off, then tackle the next one on the ladder and so forth. This method can produce reinforcing results and lead to more consistent debt payment scheduling. You may also want to call your creditors to ask them to reduce your APR.
2. Consolidate debt through consumer lending companies
Options like Lending Tree, Best Egg and Upstart have become popular avenues for many people looking to get out of debt. These companies are middle men, matching consumers with private banks and credit unions that may be able to provide a large personal loan with a fixed amount to pay back over a chosen amount of time.
For example, Upstart offers loans up to $50,000 and you can choose payment terms of three of five years. Once you apply and are approved, you’ll have the money deposited into your bank account within a couple days. Those funds can be divided up to pay off various debts.
Then you’ll be left with just one payment that you can pay down over time — as long as you don’t add more to your credit cards in the interim, you will be debt free by the end of the loan period. There are also no penalties for paying more than the set monthly amount (paying early), so you could benefit by being aggressive with your payment routine.
3. Apply tax refunds and side hustle money towards debt
Rather than splurging on a vacation, new car or luxury goods with a tax refund, consider applying it to your looming debts — or perhaps you might want to look into taking on a side hustle. The gig economy is flourishing, and is an exciting and innovative way to add extra income to combat mounting debt.
4. Sell some of your old items
One great way to pay down debt is to sell items you don’t need anymore. The secondhand market is currently very strong, growing 24% in 2022 alone. A full 62% of Gen Z and millennial purchasers look into resale before buying anything brand new, according to Retail Dive.
Jump on this cash wagon by selling your own goods, especially if you have clothing to unload, since that’s a hot item for many people. You can easily set up commerce profiles on sites like eBay, Poshmark, Facebook Marketplace and ThredUP.
5. Look into cashing in a life insurance policy
Per AARP, this can be a beneficial tactic in certain situations. For example, if you don’t have dependents that would rely on your income if you passed away — and if you don’t have a mortgage for a house that any dependents might rely on — cashing in a life insurance policy could make sense.
It’s also good to know this only works if you have a life insurance policy that has built up cash value (so it won’t work for term life plans).
6. Pay your credit card bills more than once per month
According to Wells Fargo this is a great strategy that really adds up over time. If you’re only able to make your minimum payment by the due date, but know you have more money coming in in a few weeks, apply some of that towards your credit card with a second payment. This will satisfy paying more than the minimum needed (a key to getting out of debt) but may also reduce your balance/utilization ratio, which can also improve your credit score.
7. Consider a balance transfer
If you have high-interest credit cards, you might consider doing a balance transfer to a new credit card with 0% APR. While this does require opening a new credit card, it’s just for the purchase of transferring debt on other existing lines of credit to the new option so that you can take advantage of promotional interest relief.
Credit card companies usually have great incentives for opening new accounts (if you have a good credit score), so shop around for the most competitive deal to tap into. For example, if you find a card with 0% APR for 12 months you could transfer balances — and pay off the total amount due over a year without paying any interest.
8. Stop investing (just for this year)
For 2023 only, halt your contributions to your 401(k) or IRA and use those dollars to pay off debt instead. If you have a lot of debt, it will be better to get a handle on that now and catch up with greater retirement contributions once said debt is paid off. This is also a better method than taking out money from your retirement savings, which will lead to penalties and possible taxes owed.
More From GOBankingRates