If you feel overwhelmed with bills, knowing the steps to get out of debt can relieve anxiety. If you’re like most people, you likely started with a credit card in college or a store card to get deals or buy a few things. Unfortunately, it’s easy to let that spending get away from you, even if you’re finding good deals and wind up owing more than you can pay in a month.
How to Pay Off $10,000 in a Year
Maybe your debt seems insurmountable. Maybe you have $10,000, $30,000 or even more debt. You might think getting out of debt when you owe some much seems impossible. Your debt might be from credit cards, student loans, car loans, personal loans and any combination of those.
To pay off $10,000 in debt, you have to bring in an extra $10,000 plus the interest you’re paying. The good news is that once you figure out how to pay off debt quickly, you’ll save on the interest and will pay more on the principle, increasing the speed of getting debt free.
3 Easy Steps to Get Out of Debt
Fortunately, you can take a few simple steps to get out of debt this year. How much you owe and your income will determine how quickly you can crawl out of the hole you’re in, but there is light at the end of the tunnel.
Get Out of Debt Step #1: Figure Out Where You Are
Being in more debt than you can handle seems like being in a deep, dark pit with no way out. Before you can figure out your escape, you have to know just how deep the pit is and what tools you have available that might help you get back on level ground.
Write out every debt you have from lowest to smallest. Include even those things perhaps the credit reporting agencies don’t, such as that $200 you owe your mother or the late fee you haven’t yet paid to your doctor’s office.
While it’s tempting to pay off the things that will bring up your credit score first, you still owe what you owe. It does you no good to get out of debt without changing your habits and emotional triggers with money.
You must change your mindset or you’ll wind right back up where you began–in debt. Instead, make it a goal in life to owe nothing to anyone. When you change the way you think, you’ll be debt free for good.
Get Out of Debt Step # 2: Bring in Extra Money
If a mountain of debt is weighing you down, figuring out how to pay extra and get out from under the pressure isn’t easy. Fortunately, there are a number of things you can do to find extra money and get out of debt.
- Take a temporary side gig (Uber or DoorDash, anyone?)
- Sell things you no longer need
- Call all your creditors and ask for a reduced rate or reduction in late fees to help catch up–they may say no, but it doesn’t hurt to ask.
- Use your tax refund
- Start a small business on a shoestring
- Work overtime
The United States Department of Agriculture (USDA) estimated the cost of food for most families rose from 9.4% to 10.3% of disposable income. Many families can work a little harder to use up leftovers, reduce food waste, shop loss leaders and save enough to throw toward debt.
Get Out of Debt Step # 3: Pay Lowest to Highest
There are many schools of thought about the best way to pay off debt. My favorite is to start with the lowest balance. Some experts advice paying off the highest interest rate loan first. I found the lowest to highest balance to work best for me because of what Dave Ramsey explains as the debt snowball. The more progress you make and the more you have each month to throw on debt, the faster you get out of it.
Here is how it works:
- Pay the minimum payment each month on all but the lowest balance card.
- Throw every extra penny you can find at the lowest debt so you can pay it off.
- Once the lowest balance is paid, take the amount you were paying on it and throw it at the next lowest balance card and so on until you are debt free.
Here is how it looks…
You owe your mom $200, $1,800 to a credit card, $2,000 on a used car loan and $4,000 on a student loan. Start by paying off the debt owed to your mom first. You’ll then have a little extra to attack the credit card debt. The momentum builds like a snowball rolling downhill.
More Tips to Pay Off Debt Fast
There are a few other things you can do to get out of debt, but they have both positives and negatives.
1. Consolidate Your Loans
Take out a consolidation loan so you only have to pay one payment each month. Credit cards, for example, tend to have a very high interest rate of over 20%. You could get a consolidation loan for half that and save on interest, putting all that money toward the principle.
2. Transfer Balances
If you need some time to get your finances in order and catch up, transferring high interest balances to a card with 0% fees for a year can help you out. However, be aware that there is usually a fee to transfer balances, so you’ll wind up owing more than you do now. Still, if you save enough in interest it can be worth it, assuming you throw enough at the debt to pay it off in the time frame allotted
3. Take Out a Second Mortgage
This move is a pretty risky one and we don’t particularly like it here at Crabby Housewife, but there are some advantages. First, you can deduct the interest on your taxes as of right now. You also will get a much lower interest rate and be making your home’s equity work for you.
4. Reduce Your Other Bills
If you have some extra time, start calling your other monthly services and see where you can reduce bills. For example, you might want to cancel satellite television or ask them for a reduced rate. Reduce utility costs by turning off lights and doing laundry during non-peak hours. Cut anything you can and ask for discounts elsewhere.
Cut Debt and Live Your Best Life
Finally getting out from under your bills gives you the freedom to move forward in life. If you’ve stayed in a job you hate to stay afloat, you’ll find you have more opportunities or can start your own business. Rather than working nonstop to just barely make ends meet, you’ll start to pull ahead with savings and investments. Getting out of debt doesn’t happen overnight but it is worth the effort to get control of your finances.
