Carrying any debt is stressful, but being north of $10,000 in the hole may feel especially doom-and-gloomy. Alas, this is not an uncommon situation in the U.S. In fact, $10,000 of debt is practically peanuts compared to what most Americans are carrying. According to Experian, average total consumer household debt in 2022 was $101,915 — up nearly 10% from 2020.
What can — and must — you do to emerge from this toxic spiral and become debt-free? Here’s what the experts have to say.
Recognize That You Have a Serious Problem
The first step to solving any problem is to recognize that you have one, and the onus of debt is no exception. You need to face this beast head on and understand that, sadly, if you don’t do something about it, it will only get worse and further hinder your life and freedom.
“Accept the fact that over $10,000 of debt now is a problem that is going to get worse if you don’t take action,” said Karl Jacob, CEO of LoanSnap. “Recognize this problem is not going away, and with rates rising, it’s likely to get worse.”
Analyze/Assess Your Debt
First, get organized by creating a detailed list or spreadsheet of each of your open bank and credit card accounts.
“List the type — credit card, personal loan, line of credit — balance, interest rate, term and monthly payment,” said Christopher Johns, founder and wealth advisor at Spark Wealth Advisors.
Create a Budget
“Like step one, [analyzing/assessing your debt], list out all of your necessary monthly living expenses and your take home pay,” Johns said. “This will help visualize where you are spending money and where you can cut back.”
Jones recommends using apps such as Monarch Money and YNAB (You Need A Budget) for budget creation and management.
Cut Out Unnecessary Expenses
Yes, you want that subscription service and the latte and the weekend brunch. But when you’re over $10,000 in debt, you have to enforce frugality and mercilessly pare down expenses. It’s tough, but it’s necessary to get out of debt.
“After you have visualized all your monthly inflows and outflows, see where you can cut back on unnecessary subscriptions, frivolous expenses or non-crucial items in order to become debt-free,” Johns said.
Prioritize the Worst Debt
Some debt — namely credit card debt — is more toxic than others. From your spreadsheet/list of debts, identify which ones are costing you the most and have the steepest interest rates.
“You can start focusing on paying down debts that have the highest interest first (avalanche method) or smallest balances first (snowball method),” Johns said.
Estimate Your Repayment Journey
Now that you have a revamped — or perhaps even your very first — budget, you can build out a repayment timeline.
“Use your newly adjusted budget to project the time required for debt repayment,” said Joseph Camberato, CEO of National Business Capital. “This visualization is a powerful tool toward financial freedom.”
Create a Repayment Plan
Once you’ve prioritized and organized your debt, you must determine which balances you want to pay down first using one of the methods above (avalanche or snowball).
“Of course, make sure minimum payments are being made on all debts, but put any additional money towards the ones you’ve prioritized,” Johns said. “Set up automatic payments with your bank account so the process requires minimal effort and creates momentum in your new cash flow habits.”
Negotiate With Creditors
Bills are scary, and often, it feels like you can’t get lenders to bend. But you’d be surprised. Sometimes you can talk your way out of at least a morsel of debt.
“Often, if you’re in a tight spot, creditors can negotiate payment plans with you and even reduce or waive interest if it means you will continue making your principal payments,” Johns said.
Consider Consolidating Your Debt
Debt consolidation — moving all your debt into one place, typically to a lower interest personal loan — isn’t right for everyone. Risks with debt consolidation include credit score damage, fees and even ending up with more debt than you started with if you’re not savvy and careful. But, if done strategically and with care, debt consolidation could play a role in your ticket out of steep debt.
“It can be beneficial, especially for high-interest debt,” Johns said. “By combining multiple credit card balances into one lower-interest personal loan, you can save thousands on interest and free up mental space when it comes to tackling your debt.”
Increase Your Income
You may be sick and tired of hearing that you need to work more when you’re already working your guts out, but sometimes this is the only way to clear your life of debt. Consider a side hustle if you don’t already have one.
“While this is easier said than done, focusing on ways to increase your income, while avoiding lifestyle creep — spending more as income goes up — can be a quick way to get out of debt,” Johns said. “There are a multitude of side hustles to pursue to help bring in extra income. And remember: this only has to be temporary.”
Maintain Investment Activities
While paying down mountains of debt, don’t alter your other important financial activities, like investing.
“Continue investing, even at modest levels,” Camberato said. “If your budget allows it, allocate a nominal amount, like $5 per day, to investments with your risk tolerance. Over time, this can generate a lump sum that helps with your debt repayment. Sacrifice a small daily indulgence like coffee.”
Sell Stuff You Do Not Need
There are a plethora of sites out there that allow you to list your unwanted items for sale, such as Facebook Marketplace, ThredUp and Poshmark, to name just a few. You should take advantage of these. It will help you declutter your life and, ideally, lessen your debt load.
“There are hundreds of websites where you can sell your items and make money,” said Jennifer Beeston, SVP of mortgage lending at Guaranteed Rate Mortgage. “Some of them are beyond easy to use. There is no reason to have a home cluttered with objects you do not use. Use any money you make to whack down debt.”
Get a Debt Counselor
Debt can be mentally taxing and exhausting. It can also lead to stress that can wreak havoc on your health in a number of ways. If you need help, get it.
“Speaking with an experienced, debt-focused therapist or counselor can help shift your mindset on spending and fix the problem at its root cause, as well as relieve some anxiety and help you feel more confident about conquering your debt,” Johns said.
Getting a debt counselor or financial advisor isn’t the only way to not go it alone. You can also beef up your personal finance knowledge — and learn more ways to tackle debt — by reading widely on the subject.
“A few books I’ve read that I’d highly recommend to change someone’s mindset around debt are ‘The Total Money Makeover’ by Dave Ramsey and ‘You Need A Budget’ by Jesse Mecham,” Johns said.
Being north of $10,000 in debt can feel overwhelming and depressing. In addition to seeking out support and helpful literature, you should do your best to remain optimistic.
“Try to maintain a positive outlook and persevere,” said Camberato. “Each small action you take today can yield major transformations down the road.”
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