Most of us are living with debt to a varying degree.
Just when we think we’re on the right path to paying off expensive credit cards, disaster strikes, and we have to repair our car, fix the roof, or take the kids to the doctor. It’s a never-ending cycle of pay-to-play living that reminds us of our precarious financial balance. The strategies for paying off debt are as numerous as the dollars you owe. Here are ten ideas to help you get back on the road to freedom.
By far, the best way to see what you owe, what you earn, and how much you can pay is to keep a budget. It doesn’t have to be complicated; a simple spreadsheet will do. With all the numbers in one place, it will be much easier to work at reducing what you owe and reallocating money where it is needed most.
Keep in mind budgets are a tool to help you eliminate unnecessary expenses, such as eating out regularly, taking trips, or impulse buying. Once you’re well on your way to being debt-free, you can add in occasional discretionary spending.
Credit card companies are in the business of earning money off what you owe. With high, compound interest rates, paying the minimum balance would take more than a decade to wipe out a balance of just $15,000; and that’s only if you don’t continue to use it for purchases. One of the best ways to eliminate credit card and loan debt is to pay more than the minimum monthly payment. Paying more than the minimum not only reduces the amount of interest you will pay over the term of the debt, it will speed up the payoff process. Always check to be sure the loan or credit card does not assess penalties for early payoff.
Sometimes credit card rates are so high; it seems you can’t make headway no matter how much you pay. If you’re stuck in this cycle, phone the credit card issuer and see if you can negotiate a lower rate. In some cases, this may require canceling the card, but if you can do without it, you will be in a much better position in the long run.
If negotiations with your credit card provider fail, see if you qualify for a card that allows balance transfers. These cards typically offer a 0% introductory rate, which means the balance won’t grow during that time. Without added interest, you can apply your entire payment to the principal. There is usually a transfer fee, so factor that in when comparing cards.
If you’re able to pay more than the minimum monthly payment, use the snowball approach. Using this method, list all of your debts, starting with the smallest and ending with the largest. Throw all of your excess funds (the snowball) at the smallest balance until paid and then move on to the next smallest, and so on. Instead of paying more than the minimum for other debts, use the excess money to knock off the smallest debts first.
As you eliminate smaller debts, you will have more money to put toward the next debt in line — this creates a snowball effect.
Adding more income to your household is a great supporting actor to any debt-reduction approach. More money means you can pay off debts faster. Most people have a skill they can use as a side hustle, even if it’s just driving an Uber or Lyft car. Younger family members can and should help. Mowing lawns, shoveling snow, and childminding, not only bring in more money, these kid-friendly jobs teach responsibility.
Though gig jobs are a fantastic way to add income, they are less stable than a regular job. If you can, take on a part-time job or a short-term holiday position so you can double up on what you’re paying down. Lots of permanent, full-time jobs start as temporary positions. You might end up with a great new career.
Another great way to earn money is to sell off things you no longer need. If you haven’t been skiing in years, now’s the time to turn those skis into cash. Have you lost interest in your collection of 1950s comic books? Take them to a dealer and see what they’re worth or list them on eBay or Facebook Marketplace.
Most people stumble across a windfall now and then — money you weren’t expecting that seemingly fell from the sky. Perhaps you got a raise, inherited money, or received a work bonus. Whatever the source, use this money wisely to pay down debt.
If you’re using the snowball method, pay down or eliminate the smallest balances. If you’re working on larger debts, knock them down to a more manageable amount.
If you have debt looming, your budget is the best way to see how it keeps growing. Take a careful look at where you are spending. Are you taking trips? Eating out? Visiting the barista each morning? If so, it’s time to change your habits. You can always accumulate new ones once you get back on your feet.
Reducing debt is a day-at-a-time process. Emergency expenses are not likely to go away, but you can be more prepared. A budget will help you see where the debt comes from and the best path to making it go away, all while keeping a little aside for unplanned events.
Luke Fitzpatrick has been published in Forbes, Yahoo! News and Influencive. He is also a guest lecturer at the University of Sydney, lecturing in Cross-Cultural Management and the Pre-MBA Program. You can connect with him on LinkedIn.