What To Do When You Can’t See a Way Out of Debt
Written by
Marc Guberti
Edited by
Rebekah Evans
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Credit card debt, mortgage payments and student loans are some of the financial obligations that can accumulate over time. While they may feel challenged at the moment, there are stories of people who claw their way out of six-figure debt in a few years. Sure, those stories are inspiring, but what can you do right now?
These are some of the things that can help if you can’t see a way out of debt.
Change Your Mindset and Focus on What You Can Do
Erika Kullberg is an attorney and the founder of Plug and Law. She shared how you can shift into an action-oriented mindset so you can make tangible progress and chart a path forward.
“It’s very easy to put your head in the sand when you have debt, but hiding from the truth will only make the problem worse. If you can’t currently see a way out of debt, you need to start by truly seeing your debt and your options for moving forward,” she said.
“Get out an actual physical piece of paper and write down each source of debt,” she added. “For each one, note the principal balance, interest rate, monthly due date and current payoff date, assuming you make all of the minimum monthly payments consistently.”
Create Your Debt Repayment Plan
It can be easy to feel overwhelmed and not sure about where you should start. However, Kullberg made it simple and outlined a straightforward process you can use.
“Total up all the debts so you can see exactly what you’re dealing with. Highlight that number in a bright color and start to consider which debts you can pay off the fastest if you make extra payments,” she explained. “Order the debts you wrote down from highest interest rate to lowest. The debt with the highest rate is where you will focus first.
“Once you pay off that debt, you move on to the next,” she added. “Make room in your budget for extra debt payments and readjust your repayment timeline. The faster you pay off your debt, the less you spend on interest.”
Prioritizing high-interest debt is a part of the debt avalanche method. Paying off high-interest debt first will minimize how much you pay in the long run. Some people believe in the debt snowball method instead, where the focus is on paying off the smallest accounts, regardless of the interest rate.
The idea behind the debt snowball is that you remove some financial obligations from your plate. It can serve as motivation since small loans will disappear from your debt mountain. However, you will pay less interest in your lifetime with the debt avalanche approach.
Take a Long-Term View
Most people won’t get out of debt within one month and it may take people more than a year to pay their dues. It is okay to acknowledge this since debt often requires a long-term view. Daniel Shore, money expert at LendingClub, explained the importance of having a long-term perspective.
“Getting out of debt is not an overnight fix. It’s important to acknowledge that there may not be a quick solution, but with persistence and a clear plan, improvement is possible over time. Write down all debts, including amounts, interest rates and minimum payments,” Shore said.
“This provides a clear picture of what needs to be tackled and when,” he added. “As progress is made, it’s important to focus on your individual goals and avoid getting discouraged by others’ success stories or setbacks.”
A long-term view also involves tightening your budget. It’s important to assess how you got into debt and minimize expenses when you can. For instance, you may find an unused monthly subscription on your credit card statement. People can turn saving money into a fun challenge that allows them to get out of debt sooner.
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