No one said getting out of debt was easy. Especially if you have high-interest credit card debt. It can be tough to find the money to keep up with monthly bills let alone pay down old debts. The problem is, that if you only make minimum payments, you risk being trapped in debt for years.
Luckily there are strategies to help you kick off your debt repayment plan and get out of debt faster. Let’s make 2024 the year you finally get your debt under control!
Look at the Numbers
Before you begin, it’s essential to have a clear understanding of how much you owe.
Gather all your debt statements and list out each debt, including its balance, interest rate, minimum monthly payment, and due date. This will give you a clear picture of what you’re up against and help in determining the best debt repayment plan for you.
Re-examine Your Budget
Now that you know the numbers, it’s time to take a hard look at your budget. Write down all your income and subtract all your essential expenses like rent and electricity. Next, identify areas where you can cut back, such as dining out, subscriptions, or luxury items. Even small changes can make a big difference over time.
Remember to leave a little fun money to spend as you like. If you give yourself a little wiggle room each month you’re more likely to stick with your budget and debt repayment plan.
Make a Payment Plan
Once you know what you owe it’s time to decide on a strategy to tackle your debts. Consider these three popular methods:
- Debt Snowball.
This favorite method involves paying off debts from smallest to largest, regardless of interest rates. The psychological wins of clearing small debts can be a powerful motivator to keep going. A study from Northwestern University showed that borrowers who paid off their small balances first were more likely to stick to the plan and pay off all their debts. For most people, it all comes down to motivation.
- Debt Avalanche.
If you want a more economical approach, choose the avalanche method. The avalanche strategy has you pay off debts with the highest interest rates first while making minimum payments on all your other debts. This saves you money over time and is a good choice if saving money is your primary concern.
- Debt Consolidation.
If you have multiple high-interest debts, then debt consolidation may be the way to go. Debt consolidation involves taking out a new loan with a lower interest rate to pay off all your debts. This leaves you with one bill you can pay down over time. Just don’t add more to your credit cards in the meantime. Debt consolidation is helpful since it simplifies your payments so you’re less likely to miss a due date and potentially reduces your interest rate.
Find the Money
The more money you can put towards repaying your debt, the better. Increasing your payments can significantly speed up your debt repayment plan and get you out of debt faster.
Here are some strategies:
- Commit Windfalls to Debt:
Use unexpected income, like tax refunds, bonuses, or cash gifts to pay down your debt.
- Sell Old Items:
Declutter your home and sell items you no longer need. There are plenty of online marketplaces that make it easy to sell used items. Consider Facebook Marketplace, ThredUp, or even eBay.
- Side Hustles:
Consider taking on a side job or freelance work for extra income. In today’s gig economy, there are plenty of part-time jobs that you can fit into your schedule. A few popular ones are driving for Lyft, delivering food with DoorDash, or walking dogs on Rover.
Settle for Less Than You Owe
If your debt is overwhelming and you want to get out fast, then negotiating with creditors to settle for less than what you owe can be the solution. You can call your creditors yourself or use a reputable debt relief company. There are numerous legitimate companies whose professionals have plenty of experience negotiating debt settlement.
Before you go down this route, know that many debt relief companies have you stop making minimum payments to gain leverage with creditors. This strategy can result in a lower debt settlement but can also negatively impact your credit score.
Ask for Help
Don’t hesitate to seek support from a friend or family member. It can be beneficial to talk to someone who has their finances under control. Their advice and support can help motivate you to stick with your debt repayment plan so you too can be debt-free.
If you need professional help, don’t hesitate to turn to a financial planner or credit counselor. These professionals can offer valuable insights and strategies tailored to your situation.
Setbacks Happen, Move Forward
It’s important to recognize that setbacks are part of the journey. Debt repayment is a marathon, not a sprint. You can’t always maintain the same fast pace. Unexpected expenses can arise, jobs can be lost, and recessions happen.
The key is to stay committed and adjust your plan as needed. Don’t beat yourself up for falling behind, simply move forward.
Celebrate Your Progress
Celebrating milestones, no matter how small, can boost your morale. This is why the snowball method is so effective. It gives you small wins to celebrate and helps propel you forward.
Set achievable goals like paying off your first $1,000 or making five consistent payments. When you reach your goal, give yourself a mini reward, keeping in mind not to overspend.
Paying off debt isn’t easy, but the effort is well worth it. Review your debts, create a plan that works for you, and get started. As you repay debts, remember to celebrate little victories.
For with every payment you make, you’re one step closer to a debt-free life. May 2024 be the year it comes true.