Make This the Year for Paying Off Your Debt — Here’s How

Sometimes, debt can help you get ahead, such as when you take out a loan to pay for college or start a business. Other times, it can hold you back from reaching your goals. You don’t have to resign yourself to a life of debt, though.

Click through for tips on how to get out of debt in 2018.

Grayson Bell, founder of DebtRoundup.com, employed what might seem like a counterproductive strategy to tackle his debt. Bell used credit cards to pay off more than $50,000 in debt on other credit cards.

“I played the balance transfer game, which basically pits lower-interest credit cards against those with higher interest to reduce the amount of fees you pay,” he said.

Bell transferred the balances on high-rate credit cards to cards that offered low rates or no interest at all for a certain period of time. “The key to playing this game is you have to pay off the balance on the low-interest card before the promotional period ends,” he said. “If you don’t, you can be charged the higher interest on the balance. This would defeat the purpose of transferring the balances.”

Over four years, he transferred balances six times to reduce interest costs. “This saved me nearly $5,000 in interest payments and gave me a defined goal of when I had to pay off each balance,” he said.

Click through to see the best balance-transfer credit cards.

Mortgage balances are Americans’ biggest source of debt, according to the Federal Reserve Bank of New York. By reducing your mortgage, you will likely decrease your biggest debt and also free up more cash to pay down other debt.

But, if your biggest source of debt is credit cards or medical debt, focus on reducing that debt first. Then switch gears, and attack your smaller debts.

Lauren Greutman reduced her mortgage when she was more than $40,000 in debt. She writes in her book “The Recovering Spender” that she and her husband used a short sale to sell their 3,200-square-foot home in South Carolina. Then, they rented an 800-square-foot townhouse in New York.

Their mortgage payment dropped from $1,700 per month plus $150 monthly for utilities to a rent payment of $900 per month, including utilities. They put all the money they were saving each month toward debt repayment.

“I slowly became secure in the knowledge that my housing did not define me,” she wrote in her book. “I gained confidence in knowing that we were making the best decision for our family, and that because of this sacrifice, we were going to be debt-free much faster.”

The best way to get out of debt is to keep more of the money you earn, said Holly Porter Johnson, author of “Zero Down Your Debt” and founder of the Club Thrifty website. “The best way to do that is through budgeting,” she said.

Johnson recommends using a zero-sum budget. With this budget, you allocate every dollar you make at the beginning of the month based on the previous month’s income. For example, if you made $5,000 in November, you would budget for December according to that amount.

“Not only would we divvy out funds for our regular bills, but we would also figure out how much is left over to save or pay down debt,” she said. “If $1,000 out of $5,000 in income is not spoken for, you would divvy that amount up over your debt repayment and savings.”

The key is to put money toward goals before you have a chance to spend it on unnecessary things. “When you don’t budget or create an intentional spending plan, money disappears,” she said.

After you figure out how much you can afford to pay toward debt each month, prioritize which debt you’ll pay off first. You can use many different strategies. Deacon Hayes, founder of Well Kept Wallet, said he and his wife were able to pay off $52,000 in credit card, student loan and auto loan debt using the debt snowball method.

“This is where you list your debts (from) smallest to largest, regardless of the interest rate. Then, you pay off your smallest debt with any extra cash,” Hayes said. “The reason why this was so helpful was that we were able to pay off several small debts quickly, and that gave us the motivation to keep moving forward.”

Another strategy is to focus on paying down whichever debt has the highest interest rate to reduce the total amount you pay.

The interest on this debt will accumulate faster and cause you to pay more over time if you don’t tackle it first. Whether you use this method or the debt snowball approach is up to you. Just make sure you have a plan.

Hayes and his wife went through their budget line by line to pinpoint unnecessary expenses they could cut or where they could find a cheaper alternative. “For instance, we canceled our cable and got Netflix instead,” said Hayes. “This alone saved us a ton of money each month.”

After 18 months of being intentional with their finances, Hayes and his wife were able to pay off the entire $52,000 they owed and became debt-free. “It was an amazing feeling, and it gave us a lot more freedom to do things we wanted to do in life,” he reports.

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Reducing spending frees up more money to pay down debt. Hayes and his wife did this by separating needs from wants.

“We discovered that most of what we were spending money on were wants and not needs,” he said. “This was a real eye-opener.”

Your “needs” include the items you absolutely cannot live without, including housing, food and clothing. Your “wants” might seem the same at first — but they’re not.

For example, you might have your eye on a brand-new Tesla because you need a car to get to work every day. But instead of buying the Tesla that you want, opt for a cheaper — yet still reliable — used car. Better yet, look into even cheaper public transportation.

In some cases, you might need to find ways to generate more cash to pay off what you owe quickly.

In her book, Greutman wrote that she sold unwanted items from around her house on eBay and Craigslist. “Every extra cent I made … went to paying down our debt even more,” she wrote.

She recommends selling furniture and larger items on Craigslist or through local Facebook buy-and-sell groups. You can sell brand-name clothing in good condition on sites such as eBay or thredUP.com. You can sell books you no longer want on Amazon using the Amazon Seller app.

You also can boost your income by taking online surveys on sites such as InboxDollars and Swagbucks or by testing websites through UserTesting. Another way to make money is to get a side hustle, such as walking dogs or driving for a ride-share service.

If you’re struggling to get a handle on debt, consider getting professional help. But be wary of any company that offers to settle your debt for pennies on the dollar or that charges fees before settling debts. Also, avoid doing business with companies that guarantee to make your debt go away or that tell you to stop communicating with creditors, according to the Federal Trade Commission.

Instead, look for agencies certified through the National Foundation for Credit Counseling that offer no-cost or low-cost assistance. Certified credit counselors can help you develop a debt repayment plan and can work with creditors to get payments reduced. You can find a counselor near you by using the NFCC website.