How to Get Out of Debt
Are you feeling like a solo passenger on the Hot Mess Express when it comes to debt management? đ° Trust me, you're not riding that train alone. Iâve been there, and so have many, many others. We donât ever talk about it, though, so it can feel lonely! If youâre ready to take the first step toward getting your financial sh*t together, Iâm here to help guide you!
How to Start Getting Out of Debt
Step 1: Organize all your debt
First things first: We have to face it head-on. Grab your laptopâor a pen and paper; this doesnât have to be fancyâand make a list of all your debts, including the interest rate, minimum payment, and due date. This will help you stay organized by knowing whatâs due and when so you donât miss any payments.
Step 2: Autopay is our BFF
Life is busy enough without having to remember every single billâs due date. Set up autopay for the minimum payment on all your debts (and other bills while youâre at it). And if the due dates don't work with your pay schedule, call the company and ask to change the due date. Yes - you can do that!! You're the CFO of your money here, so letâs take control. We donât want to forget and end up with any late penalties or, worse, in default (this has a significant impact on your credit score).
Step 3: Choose a debt payoff method
Now it's time to get down to business. You can do one of three methods: avalanche, combo, or snowball.
Snowball Method
Pay the minimum on all debts and put extra money towards the debt with the lowest balance until itâs completely paid off, working your way up to the debts with the highest balance.
Avalanche Method
Pay the minimum on all debts and put extra money towards the debt with the highest interest rate until itâs completely paid off, working your way down to the debt with the lowest interest rate.
Combo Method
Pay the minimum on all debts but flip-flop between the snowball and avalanche method.
Example: Maybe you have three credit cards:
Credit Card 1 has a $500 balance with a 31% APR
Credit Card 2 has a $4,000 balance with a 34% APR
Credit Card 3 has a $2,000 balance with a 24% APR
With the Snowball Method, youâd pay off Credit Card 1, then Credit Card 3, then Credit Card 2âŠbecause thatâs the order with the smallest balances
With the Avalanche Method, youâd pay off Credit Card 2, then Credit Card 1, then Credit Card 3âŠbecause thatâs the order with the highest APR.
With the Combo Method, maybe you decide to use Credit Card 1 since it has a low balance and you want a quick win, but then maybe you use Credit Card 2 next since it has a much higher interest rate than Credit Card 3. You flip-flop between the two methods.
What you DONâT want to do is just blindly throw money at debts randomly because you get zero quick wins, and it can feel really defeating never to have one fully paid off. Know yourself best and pick that method. Mathematically speaking, the Avalanche Method is best because it saves you the most money over time. But we are not robots; we are humans. So, if you know that youâd be most incentivized by knocking things off your list quicker, maybe you go with the snowball method.
It's like a game of Jenga, but instead of stacking blocks, you're crushing debt.
Benefits of Paying Off Debt Sooner
I cannot stress enough the benefits of paying off your high-interest debt as soon as you can. Notice I said HIGH INTEREST. I personally donât believe all debt is bad. If youâre financing your car at a 2% interest rate - you get that, my friend! But if youâre rocking 30% interest rates on your credit cards, thatâs another story.
Knocking out this debt will save you tons of money on interest payments. Plus, paying off your debt will improve your credit score (which is huge for buying a home or car, getting approved for large purchases, or even renting your dream apartment).
But most importantly, paying off your debt sooner will reduce your stress levels. Think about it: no more late-night stress sessions worrying about how you're going to make those minimum payments. And like I always say, money is mental AF.
Other Helpful Tips for Getting out of Debt
Here are some other tips that may be helpful to you as you start to pay off your debt.
đȘYou may consider calling your credit card company and seeing if they can lower the interest rate. If you have a good payment history, chances are they would be willing to (at least for a short period of time).
đȘCall your credit card company to see if they have any special promotions they can offer you. The worst thing theyâll say is no đ€·đŒââïž
đȘBuilding in a âfunâ piece to your budget as well as having an emergency fund should be non-negotiables. You donât have to cut out everything! If your morning Starbucks is the best part of your day, keep it in your budget! Will it delay your debt-free date slightly? Probably. But itâs better to create something sustainable that you will actually stick to than fall off the wagon a couple of months into your journey.
Final Thoughts
Taking the first step is the most challenging but most crucial part. I know itâs hard, but you HAVE to face it head-on. It doesnât go away just because we arenât looking at it.
Managing debt can feel overwhelming, but remember that consistency is key. Follow the plan and stick to your commitment, but remember to also be patient with yourself. You will fall off the wagon, and your first plan wonât be perfect. But get back on that wagon, friend. A lot of other people have debt, too. Learn from your mistakes, build out a sustainable plan, and tackle the problem head-on.
You can do it! Being debt-free is going to be an amazing feeling! I still remember how I felt the day I made my last student loan payment. Sitting in my apartment alone, I suddenly looked around for someone to high-five. WHY IS CONFETTI NOT EXPLODING OUT OF MY COMPUTER? đ! If you pay off your debt, let me know, and I would love to give you a virtual high five!
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