If you’re struggling with debt, you’re not alone. A 2018 GOBankingRates survey found that the average American is over $52,000 in debt, with a third of those polled stating that credit card debt is the debt they want to pay off most.
No matter what kind of debt you have, it can seem insurmountable — interest keeps adding on while your income remains stagnant. But fortunately, with the right strategies, it is possible to pay off your debt and turn your financial life around. GOBankingRates spoke with financial experts to get their best get-out-of-debt tips so you can set yourself up for a better tomorrow.
Change Your Mindset
“Making the decision to get out of debt is the first step, but also the most difficult,” said Cory Chapman, personal finance coach and CEO of EFC Wealth Management. “Actually changing your mind and accepting that you need to make life changes is the hardest part. The process of getting out of debt is going to take discipline, but it starts with the mindset that you want to be debt-free.”
Get a Clear Picture of How Much Debt You Actually Have
To get rid of debt, you first have to be aware of how much you actually have, said Michael Gerstman, ChFC, CLU, CEO of the Dallas-based retirement planning firm Gerstman Financial Group.
“List all of your debts, current balances and what the interest rate is on each debt,” he said.
Consider Consolidating Your Debt
Debt consolidation might be a good option for those who have various high-interest debts and want to just make a single monthly payment that works toward paying down all your debts at once. If you go this route, taking out a personal loan could help you achieve your financial goals in a more manageable and affordable way.
Track Your Monthly Spending
Now that you know how much you owe, get a clear picture of where your money is going, whether it’s on your morning coffee, tech, shopping, dining out or planning for your dream wedding.
“Most people don’t even know what they are buying on a monthly basis,” said Chapman. “The miscellaneous items and little purchases eventually add up. Use an app or program to help you keep track of your spending habits.”
Eliminate Any Subscription Services You Don't Really Use
When you see how much you are spending each month and exactly what you are spending it on, it’s easier to see ways that you can cut down costs. Start by eliminating any automatic payments you make for subscription services that you don’t use or can easily live without.
“There is no easy way out of debt except to change your personal consumption habits,” said Robert Reilly, chief investment officer at Sandy Cove Advisors. “If you can’t afford to pay for that item or service this month, you can’t afford it — period. Review all of the subscription agreements you are being debited for, everything from Planet Fitness to Netflix to Apple Music to Spotify. Are you really using this stuff? Can you live without it? Everything can be reconsidered.”
Eat Out Less
Another significant way to cut your spending is by reducing how often you get take-out or dine out.
“Make a goal to cut [spending on eating out] in half per month by bringing lunch to work and eating dinner at home during the week,” said Trey Peterson, a Ramsey Solutions master financial coach with Haven Financial Group. “This will likely save you $250 or more a month. That’s a raise that can help knock out your smallest credit card balance.”
Reduce Your Cable and/or Phone Bill
Renegotiating your cable or phone plan, switching to a lower-tier plan or switching providers can save you hundreds.
“Many of my clients have found this to save them $150 to $200 a month, and they never miss the 500 channels they never watched,” said Peterson. “In fact, I often hear this caused them to be more active while helping them reduce their debt.”
Stop Paying For Things With a Credit Card
When you’re already struggling with credit card debt, you should do everything you can to stop adding to it.
“Get rid of as many cards as possible — cut them in half,” said Reilly. “Use only a debit card if you can.”
Develop a Budget
Once you have a clear picture of how much you are spending — and have taken steps to reduce this amount — you can see how much money you have left over each month to dedicate to paying off debt.
“Set quarterly goals for debt reduction, and develop a budget with a line item for the debt service,” said Gerstman.
Using a personal loan like one from PenFed Credit Union to consolidate your debt helps your budget by making debt repayment more manageable. Personal loans often don’t have as high of interest rates as credit card debt and other common debts.
If You Don't Have Enough Income to Pay Off Debt in a Reasonable Timeline, Find New Income Streams
If you don’t have enough left over between your earning and spending to be aggressive about debt repayment, consider adding to your income by working overtime, starting a new part-time job or starting a side hustle or side business.
“Think about how much extra time you have and put it to good use,” said Ericka Young, a certified financial coach and founder of Tailor-Made Budgets. “There are plenty of ways to use your gifts and talents to earn a little extra income. Just $500 per month more might be the difference in paying off your debt in months rather than years.”
Sell Household Items You Don't Need
To get even more funds to pay off your debts, consider selling household items you no longer use, such as clothing or electronics. There are likely plenty of hidden sources of income lying around your house.
Check In on Your Progress Every Week
Creating a debt repayment strategy is important, but it won’t be effective if you don’t actually stick to it. Be sure to check in on your payments and see if you’ve accumulated any new debts that will need tackling.
Find an Accountability Partner
It can help to have someone to check in with who keeps you on track with your debt repayment goals.
“Just like with a diet or workout routine, having an accountability partner makes all the difference in your odds of success,” said Peterson.
Your accountability partner can be a friend or family member, or a financial professional.
Once You've Paid Down Your Debt, Start Prioritizing Saving
Paying off your debts is a major step in getting your financial life back on track — but it’s not the only one. Set yourself up for long-term success by building up your savings and retirement funds.
“Once you’ve streamlined your life, start thinking about saving, and paying yourself first each pay period,” said Reilly. “Start putting money away in your employer-sponsored retirement plan, or start your own if your employer does not have one.”
You should also aim to save at least $1,000 in an emergency fund, several experts said. This will help ensure that you don’t go into debt again in the case of a family, medical or home emergency, or job loss.
Click through if you’re wondering how to save on things like home remodeling after you have your finances in order.
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