5 Tips That Can Help You Get Out of Debt in the Next Year

Frustrated couple checking bills at home using laptop.
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Millions of Americans are taking their brand new resolutions out for a test drive for the first time right now as 2022 gets started. Many of those resolutions have to do with money — and getting out of debt is among the most popular of them all.

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If you’ve resolved to reduce or even eliminate toxic debt in your life this year, congratulations — you can’t enjoy good financial health until you do. Becoming debt-free is a daunting but achievable goal. Here’s what you need to know.

In Most Cases, It’s Cheaper To DIY

There are many different schools of thought on the best way to get out of debt, but generally speaking, there’s only a single pair of options.

“Every individual can begin with one of two avenues,” said Tim Kessel, MBA, assistant professor of business and finance at the Dickinson State University School of Business and Entrepreneurship. “Develop your own debt reduction plan or get assistance from experts.”

Paying a guide to help you navigate the murky waters of the consumer debt industry might sound like a no-brainer, but the debt-elimination industry can be just as treacherous.

Make Your Money Work for You

“Seeking help from a credit counselor or a financial planner may come with a cost,” Kessel said. “Often that cost takes on the form of a soft cost. Although counselors or financial planners say their services are ‘free,’ they may get paid from taking a share of reduced interest rates on refinanced loans and credit cards. These experts may contract with financial institutions and agencies. Even though you see a reduction in interest rates, their efforts may add a service fee to the new debt in the form of slightly higher interest rates.”

See: 16 Key Signs That You Will Always Be In Debt

Consolidate Far-Flung Debts

Kessel recommends unifying scattered high-interest debts under the same umbrella with one, lower-interest loan that lets you stay organized and save money.

“I am not suggesting taking on more debt,” Kessel said. “You are transferring your obligation from one lender to another.”

That could mean taking out a personal loan and using the cash to pay your credit cards.

“Rates on personal loans and mortgage loans will come with a lower interest rate than credit card rates,” Kessel said.

Make Your Money Work for You

You might also consolidate by taking out a balance-transfer card with a zero-percent introductory APR.

“If moving credit card balances to one or fewer credit cards, watch out for a balance transfer fee,” Kessel said. “This will increase your debt.”

You can also consolidate debt by borrowing against your home.

“Transferring credit card debt and even personal loans to a home equity loan reduces the interest rate, lowering the monthly expense, but may extend the term,” Kessel said.

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Avoid the Minimum Payment Trap

Debt consolidation is a strategy for managing debts with multiple lenders, but whether you have one credit card or 100, one rule is not negotiable — pay more than the minimum balance.

“Paying more than the minimum saves money on interest and accelerates debt repayment,” said Adam Wood, co-founder of RevenueGeeks.

He used the example of a card with a $15,000 balance, a 17% APR and a $450 minimum payment.

“Making only the minimum payment will take nearly four years to repay the balance,” Wood said. “Total interest is around $5,500. A monthly payment of $550 — $100 over the minimum —  would pay off the debt in less than three years, saving $4,100 in interest.”

Make Your Money Work for You

Helpful: 25 Ways To Save Yourself From Your Debt Disaster

Start by Pursuing Small, Early Victories

If you choose to pay down your debts one by one instead of consolidating, don’t make the mistake of randomly throwing money at whichever bill is due next. You have to have a plan — and the debt snowball method has a long track record of success. 

“An oldie-but-goodie, it involves funneling every spare cent toward paying off your lowest balance debt first, while paying the minimum monthly payment on your other debts,” said G. Brian Davis, a real estate investor and founder at SparkRental. “Once you pay that off, you then focus all your efforts on your next smallest debt. With each one you pay off, you have more money to funnel toward the next debt, hence the name ‘debt snowball.'”

This method can also have a powerful impact on your all-important state of mind once the novelty of your New Year’s resolution wears off.

“It works well because you get to experience some quick wins early on, paying off smaller debts,” Davis said. “That helps you build some psychological momentum in addition to financial momentum.”

Find Out: How Much Debt Americans Have at Every Age

Offer Less Than You Owe

If you really get into trouble and owe more than you can possibly pay, the best thing to do might be simply to call your lender and see if you can make a deal.

“You can contact your creditors and arrange a debt settlement, usually for a far lower amount than you owe,” said Gerrid Smith, CEO and founder of Property Tax Loan Pros.

In this case, professionals might be able to negotiate a lower number on your behalf — but beware.

“While you can do it yourself, there are a number of third-party companies that offer debt settlement services for a cost,” Smith said. “While paying less than you owe and getting out of old obligations may seem like a good idea, the Federal Trade Commission warns of potential dangers. For instance, some debt settlement agencies require you to cease paying your obligations while you negotiate better terms, which might harm your credit score.”

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About the Author

Andrew Lisa has been writing professionally since 2001. An award-winning writer, Andrew was formerly one of the youngest nationally distributed columnists for the largest newspaper syndicate in the country, the Gannett News Service. He worked as the business section editor for amNewYork, the most widely distributed newspaper in Manhattan, and worked as a copy editor for TheStreet.com, a financial publication in the heart of Wall Street's investment community in New York City.
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