Consumer debt in the U.S. now totals $11.4 trillion, including mortgages, auto loans, credit cards, and student loans, according to Debt.org. If you’re responsible for any portion of that, especially more than you’d like to be, there are a lot of emotional effects of that debt you may be dealing with.
One common emotion is feeling hopeless. You might feel like there’s nothing you can do right now to make progress on this debt. Hopelessness can make you feel like giving up or, worse, ignoring the debt as it piles up higher. But regardless of what you owe, who you owe, and what your financial situation is right now, there is at least something you can do about your debt today.
Here’s how you can start tackling your debt from this day forward:
Understand What You Owe
The first step to beating debt is knowing what you’re up against; don’t be one of the many people who live in denial of their debt as it keeps piling up. Whether you are in full-blown denial and stuffing your statements and bills in a drawer or you are actually taking steps to deal with it, you can always stand to get an updated, more thorough understanding of where your debt stands today.
Write down every debt you have. Next to each debt, write the total amount you owe, the interest rate you’re paying, and the minimum monthly payment.
What are you paying in interest each month? This information will help when you’re trying to make a game plan of how to deal with the debt. It also might just be the motivation you need to start finding productive ways to minimize the debt.
Now that you know what you owe, get your finances in order. It’s time to organize those statements, bills, and balances on credit cards. Being disorganized can lead to even more stress and make you less motived to perform, according to a study by Princeton University. In this case, “performance” refers to knocking out your debt.
Here are some tips to help you get organized:
- Update your e-mail address on all of your accounts. This way you’re getting all of your notifications from credit cards, loan lenders, your bank, and any other bills to the same account.
- See what type of alerts each account offers. Some offer text alerts and e-mail reminders when your bill is due to keep you from avoiding late payments.
- Mark on a calendar when each bill is due. Cross it off when you have paid it.
- Implement a system for paying bills. Create a document on your computer that can help you keep track of when you paid bills. Include the date you paid and the confirmation number if you’re paying online.
- If you’re a paper filer, separate your accounts into different categories.
- Stop blindly paying the minimum balance or what’s due. Investigate your bills to see what the charges are so you can spot any errors.
Examine Your Bills
When you’re in debt, it can feel like a merry-go-round. We work, get paid, and the money blindly goes to bills and debt repayment. Take a second to analyze your bills, and you just might be able to free up some money to make more progress on your debt instead.
Go through each set bill. How can you reduce it? For your cell phone bill, can you downgrade your plan to save money or switch to a more affordable provider? This goes for bills you never see, too, like online subscriptions that automatically get renewed. Do you need both Netflix and Hulu Plus? Even if you’re only cutting $10, that’s $10 more that will go toward your debt repayment, an extra $120 a year. And while $120 might not get you too far, if you can make a few more small cuts, you’ll see how quickly it can add up.
The cable bill is often on the chopping block when people talk about cutting bills. You can eliminate cable altogether by watching most TV shows online for free, borrowing movies and TV series on DVD from your local library, and signing up for Red Box alerts to score free movie rentals. If you just can’t bear the idea of going without cable, can you at least cut your bill by bumping down to a lower package or eliminating an additional service?
Right now, you can implement plans to lower your electric and heating bills. Unplug anything you’re not using. Even when items are switched off, they’re still sucking up electricity if they’re plugged in. Throw on a sweatshirt before you turn the heat up. Lower your hot water heater’s target temperature, and use luke-warm or cold water to wash dishes and clothing if possible. Be diligent about turning off the lights when you leave a room.
Similar to cutting your bills, reducing your spending can help you get out of debt more quickly as well. The best way to cut spending is to stick to a budget every month.
Today, you can figure out what you can cut. Review your bank statements and credit card purchases to figure out what you’ve been spending every month.
With each purchase, first determine if it was a want or a need, with the possibility of eliminating some of those “wants” altogether in the future. For example, can you eliminate magazine subscriptions, professional manicures, and luxuries such as electronics, clothing, eating at restaurants, and accessories? Now that you’ve determined a few things you can cut out completely, you know you can put that money toward debt in the months ahead.
Next, it’s time to reduce the cost of needs. Even if you need to purchase something, there may be a cheaper way to do it or a way you can cut back. You obviously need food, but you can spend less on it. Cut down on or eliminate fast food and restaurants and eat at home more often. Sign up for grocery store loyalty cards, buy what’s on sale and in season, and clip coupons for the items you’d buy anyway. Research recipes that require less expensive ingredients than what you’ve been using. Brew coffee at home and take it into work with you, instead of paying $2.00 or more a cup at the corner coffee shop every morning.
With every need you have, such as food, take time to brainstorm ideas (or do some research online) for how you can reduce the amount of money you’re spending on it. Another great example is transportation. Plan your errands and routes more efficiently so you’re using less gas. Carpool whenever you can, or, if public transportation is available and cheaper (remember to factor in parking), opt for that instead. Walk and ride your bike whenever possible.
Increase Your Income
Cutting back is beneficial to reducing your debt, but if you can combine it with increasing your income, you’ll see your debt fade even faster.
- While getting a job with a higher salary is a surefire way to increase your income, it’s not something you can actually do this second. However, you can make a game plan to get you there. Update your resume, spruce up your LinkedIn profile, and start your job search. Consider learning a new skill or certification to increase your chances of getting hired.
- Can you ask for a raise at your current job? If you’re paid hourly, are you able to take on extra shifts to earn overtime? Offer to take on more responsibility for a pay increase.
- Apply for a part-time job. Working both a full-time job and part-time job can be rough, but it is a good step toward paying off your debt. To make things easier on yourself, first shoot for part-time positions that are near your home or your regular job to make your commute easier. Better yet, choose a part-time job that you might actually enjoy, or that offers an employee discount on items you tend to buy anyway.
- Go freelance. Turn a skill into a nice side job to put money toward your debt. Start by brainstorming your most marketable skills and traits. Freelance opportunities exist for make-up artists, writers, graphic designers, accountants, interior designers, editors, and many other roles. Sign up on Upwork.com, an online freelance marketplace, and look for contract jobs there, on Craigslist and other jobs boards, and on industry websites.
- Take on “gigs” or side-jobs. Unlike part-time jobs, these would be more flexible and not as concrete. If you’re handy and know how to repair household items, there’s always someone looking for extra help. Other possibilities include babysitting, tutoring, walking dogs, cleaning, running errands, and personal shopping.
- Make extra money with a hobby or in your spare time. Sell your crafts on Etsy.com or at craft shows, or if you have an eye for vintage bargains and collectibles, pick up cheap yard sale items and resell them on eBay or Craigslist.
Sell Items You Don’t Need
A quick way to eliminate a portion of your debt is to sell items you don’t need and no longer use. This project is something you can start today to get the debt ball rolling, and quickly wiping out a chunk of a high-interest balance can give you the emotional jump start you need to feel like you’re finally making progress.
Take valuable jewelry to a reputable store that buys jewelry. Check reviews online and their rating on the Better Business Bureau to ensure you’re getting an appropriate price. Any designer or high-end clothing, shoes, and accessories can be brought to a consignment shop or second-hand store. Other name brand clothing can be brought to a store such as Plato’s Closet. Sell used electronics, such as phones or tablets, on Gazelle.com. List your used textbooks, books, and DVDs on Amazon. Anything else can be sold on eBay, Craigslist, or a weekend yard sale.
Make a Game Plan
There are a handful of different strategies and theories on paying down debt. Some believe you should start with the lowest balance, pay it off, and then take whatever you were paying toward that and put it toward the next highest balance — the ‘snowball’ strategy. The idea is that the steady progress will build on itself and help you stay motivated to follow through on each bigger debt.
However, another strategy is to start attacking the debt that you’re paying the most interest on. This helps you pay less money in the long run, which could hasten your progress — but it can be harder to stick to if you’re starting out with an insurmountable high-interest balance.
Whatever strategy you choose, set short-term goals for yourself so you continue to see progress and don’t lose your momentum.
Lower Your Interest Rate
One of the most frustrating things about debt is that even if you’ve stopped your spending entirely, the debt still grows because of interest.
Call your credit card company, and ask if they can lower your interest rate. It may not happen, especially if your credit score has suffered because of late payments or high balances, but it’s definitely worth the call.
Another option is to transfer a portion of your high interest debt to a card with a lower interest rate, ideally a low fixed rate or a promotional 0% interest rate. One issue with this option is that opening another credit card account and the ensuing credit inquiry will temporarily lower your credit score, and if you haven’t paid off the transferred balance by the end of the promotional period, you’ll be right back where you started with a high interest rate. You need to base this decision off your personal situation: Is the pay-off worth the drawback?
You can also lower the interest rate on your student loans to reduce your student loan debt. Some loan providers offer a small interest rate reduction if you sign up for auto-pay every month. Ask your loan provider for details.
Eliminate What You Can
It’s probably not going to wipe out all of your debt, but there is a chance you can outright eliminate some of it.
First and foremost, if you have student loan debt, consider student loan forgiveness options such as joining the military, moving to a place that would forgive some of your loans, choosing a job that pays your loans, or volunteering.
Inspect your credit card statements. Spot any errors or fraudulent charges. If you haven’t been checking your statements, there’s always a chance you were double-charged for something. Contact your credit card company immediately to dispute any incorrect charges. This would obviously reduce your debt immediately.
While inspecting your card, if you see any additional charges, such as an annual fee or late fee, contact your credit card company to see if they can waive the fee.
And finally, as you’re looking at your statements, do you see any recent purchases you can return? If you just bought new clothes you haven’t worn, return them to the store if you’re able to get your purchase refunded directly to the card.
Make a Fun, Free To-Do List
Paying off debt can be a long, tumultuous process. If you’re working more and trying to cut back on restaurants and other entertainment, it can be even more stressful. While it may not directly affect your debt pile, making time to still be social and have fun will improve your quality of life and probably keep you on track better.
Make a list of free or cheap things you can do to relax and have fun. Research when local museums offer free admission days, see what types of free concerts and festivals are happening in your community, and find out what free events businesses may offer such as a brewery tour, free tastings and cooking demonstrations at grocery stores, and fashion shows at clothing stores.