6 Ways to Get Out of Debt

Getting out of debt can be a scary and daunting journey at first. It may seem overwhelming in the beginning, but that is totally normal! While it does take a lot of discipline and consistency to get out of debt, it is possible for anyone to do. With the right tools and knowledge you can begin the journey of paying off your debt. 

Here are 6 ways you can get out of debt:

1. Figure out the details of your debt

This is arguably the most important step in your financial journey. You can’t pay off your debt if you don’t know how much you owe and what you are paying! So, sit down with your coffee (or wine) and go over all the debt you have and understand your situation. This is a great way to make a plan that you can commit to in order to get out of debt. Some important questions to answer are:

What kind of debt is it? 

• Is it investment or consumer debt? In most cases, it is best to pay off consumer debt first as it is normally considered ‘bad debt’. 

What kind of interest rate does the debt have and what is it?

• Does the debt have a fixed or floating rate? This is extremely important when creating a plan to pay off your debt. You want to know which debt has your highest and lowest rate and how much you are putting towards your principal loan amount each month.

How much money have you paid off so far and how much do you have left?

• This will give you an idea of how long it will take you to pay off your debt. It is crucial to know how much principal loan amounts you have left to pay and how much you have (and will) pay in interest.

2. Pay the full amount rather than the minimum payment

When your bill or statement comes each month, pay it in full every. single. month. Do not pay the minimum balance, this hurts you by adding on more debt and you then have to pay the interest rates. This tip is especially important for credit card debt, which normally has the highest interest rates.

3. Boost your income

There are a few ways to boost your income each month. If you boost your income you can put more  money towards your debt, allowing you to pay it off sooner. One way is to cut down on your expenses every month or you could try to increase your income. You can do this by getting a second job if you have the time, or pick up some side hustles. 

Side hustles are my personal favorite, they are always optional so you can do them on your own time and its not unusual to be paid in cash. The options for side hustles are endless!

4. Utilize the Snowball or Avalanche Method

These are both very effective ways to pay off your debt, which many people have used. The snowball method instructs you to pay off the debt that has the lowest interest rate each month. Then once that debt is paid off, put the monthly payment towards the debt with the next lowest interest rate, and so on, until you are debt free. The avalanche method is the opposite, in which you should pay off your debt with the highest interest rate first. Once you have paid that debt off, take that monthly payment and put it towards your debt that has the next highest interest rate, until you have paid off all debt. 

Both of these methods are effective and work well; you just need to determine which one suits your situation best. Learn more about each method and see which one will work best for you!

5. Do not take on any more debt.

One of the best and easiest ways to get out of debt is to avoid any additional debt! There is nothing that will slow your progress down on your financial journey more than acquiring new debt. In order to pay off debt, you need to be putting your money towards debt you already have. Not towards new debt that will just dig you a bigger hole.

6. Look into refinancing

Refinancing could be a great way to lower your debt burden. If you have debt that you acquired with a high interest rate it may be possible to refinance to a lower rate, of course this is dependent on the market. This would be a great way to lower your monthly payment, allowing you to put more money towards your principal payments each month.

Conclusion:

Beginning the journey of getting out of debt is always the hardest part. However, when you take the first step to understand your financial position, you will set yourself up for success. Understanding the types of debt, their respective interest rates, and the total amounts owed provides a clear roadmap for devising a repayment strategy. Focus on paying off debts in full each month , particularly for high-interest debts like credit cards, to minimize the money put towards interest. Increase your income through side hustles or additional jobs to provide extra funds to speed up your debt repayment. Consider taking a structured approach to tackle debts, such as the Snowball or Avalanche method. Avoid taking on new debt to maintain progress and ensure that all available funds are directed toward paying off existing debts. Finally, exploring refinancing options to secure lower interest rates and monthly payments can further expedite your journey to debt-free living. Taking these first few steps will be the hardest part. Take it all one step at a time and you will build discipline and develop a better mindset over your finances. This will empower you to take control of your finances and pave the way for a secure and stable financial future.