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Best Ways To Get Rid of Debt

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There are three truths to debt:

  1. Getting into it can be fun.
  2. Getting out of it is not.
  3. Getting rid of it is worth the effort.

And just why is all that unenjoyable effort worth it?

To get to the bottom of that issue, we’ll accentuate a couple of the negatives of debt. Among other complications, too much debt makes you look like a risk to a mortgage lender, which can keep you from getting a home loan you can afford or keep you from buying a house altogether. Too much debt is a penalty you pay when enjoying the convenience of a credit card. Too much debt can even cause a hiring manager to suspect you might not be the responsible employee the company wants, putting a high hurdle between you and the job you’re after.

Those are just the start of the real-life challenges that come from carrying too much debt. So, yeah, it’s worth the difficult, disagreeable effort involved with changing your spending habits and eliminating your debt.

But getting out from under debt doesn’t have to be chock-full of misery, pain, and hopelessness. Millions of people have done it, so why not you? It’s a detailed process, but there are positives to accentuate, too, about your access to debt management strategies that will alleviate some of those dark-cloud hardships and brighten up your financial life. The more you understand about your debt relief options, the sunnier your prospects will be.

You’re here because you want to know the answer to the BIG question: How do I get out of debt? Read on. We’re going to discuss the pros and cons of those strategies to help you find the best way to do it.

Getting to Know Your Debt

Do you know how much you owe right now? The total amount of your debt?

Do you know how much interest you’re paying on each of your credit cards and loans?

Do you know what your monthly payments are, and how much longer you’ll have to pay them to eliminate all your debt?

If you don’t, find out. If you do, then organize that knowledge to help you find the best way to get rid of your debt.

Put the balances due on all those credit cards and loans, including your mortgage, your car loan, and any other outstanding loans, in a list ordered from the lowest amount to the highest. Then take out a calculator and use the + button to add ‘em up.

Look at every last one of your monthly bills and jot down the interest rate you’re paying on each of them, and then rank those interest rates from highest to lowest.

Do the same with the amounts you owe each month on all your financial obligations, along with term lengths of the loans you’ve taken out.

Once you’ve done all that, look in the mirror and see how wide open your eyes are. Understanding debt will do that to, and for, you. Knowing the specifics of your debt is a foundational step towards creating a solid plan to get out of it.

Strategies to Get Rid of Debt

Now that you know what you’re dealing with, you can be smart about sorting through the options for getting rid of debt and identifying the ones that suit your specific predicament. You’ll be able to apply the learning you did when you took stock of your total debt, the interest rates you’re paying on it, and the monthly checks you’ve been writing to pay it off.

There are a hundred ways to deal with debt, many of which you are about to discover. Read through each of them and decide which suits your personality and spending habits. Find the one that’s easiest for accomplishing your goal. Or, maybe, combine two or three of them and create your own method for best managing your money.

Debt Snowball Method

Little victories add up. That’s the theory behind the debt snowball method.

You’ve got that lowest-to-highest list of balances in front of you, right? Start at the top of it. Get rid of the smallest debt first by paying as much as you can on it every month while continuing to pay the minimum on the other balances. When you pay off the smallest debt, move on to the next one.

Every time you cross off a debt and eliminate a monthly payment, you’ve got a little more money to put toward the next one on your list. Like a snowball rolling downhill, the quick, early momentum from those little victories provides the motivation to keep you going through to the bigger chunks of your debt at the bottom of the list.

The drawback to the debt snowball method? It usually isn’t the best way to save money on the road to getting rid of debt.

Debt Avalanche Method

An avalanche gets to the bottom of a hill in a hurry. That’s one of the money-saving advantages of the debt avalanche method, which prioritizes your debts with the highest interest rates rather than by the lowest balance amounts.

You pay as much as you can over the minimum monthly payment on the debt that comes with the highest rate first (probably a credit card). When it’s paid off, move on to the next-highest rate, working your way down that list. Because you’re attacking your most expensive debts up front, the debt avalanche approach should speed up the money-saving process compared to the debt snowball method.

Debt Consolidation

One of the beauties of debt consolidation is that it reduces the number of payments you make every month from … well, from however many credit cards and loans you currently have, down to one. Simplicity. But wait! There’s more!

When it’s structured correctly, debt consolidation also lowers the interest you’re paying on your debts, thus your one monthly bill is smaller than the combined sum of your pre-consolidation debts.

How does it happen? There are two ways.

  1. You can take out another loan for an amount that will pay off your outstanding balances while you make one monthly payment on the new loan, usually over a 3-5 year time frame.
  2. You can use a debt management program offered by a nonprofit credit counseling agency which works on your behalf to get concessions from your credit card companies to lower your interest rates from somewhere in the 20s, down to 8%, sometimes lower. Thus, more money goes toward reducing the balance and less to the interest rate being charged.

Budgeting and Spending Cuts

You’ve created a budget, right? RIGHT?! No? Good golly, why not? Do it. Do it now!

Figure out how much money you’ve got coming in every month and match that amount against how much you spend over the same time frame. Once you’ve done that, you can see how to reduce your expenses, so you earn more than you spend.

How do you go about cutting expenses? Lots of ways. Pack your lunch to work. Skip Happy Hour. Hide your credit cards and pay cash instead. Take a shopping list to the grocery store and don’t deviate from it. Get a roommate to share household expenses. Do away with unnecessary subscriptions and memberships. The list goes on. Freeing up all that additional money and using it to eliminate debt will speed up the process.

Increasing Your Income

Sure, you can ask your boss for a raise. Again. But when he or she says no again, you’ve still got options for bumping up the income side of your budget. Look into a part-time job, maybe driving for a ride service or doing weekend lawn care. If you’re into irony, you could even be a part-time debt collector. If you have specific skills such as, say, a writer or a graphic designer, market them to drum up freelance work. Sell your old TV or sound system on eBay. There are numerous side jobs you can take on for extra income to put towards paying off your debt more quickly.

Common Mistakes to Avoid

We told you early on that getting out of debt isn’t much fun. It’s hard and it’s painful and it’s full of opportunities to slip up. But it doesn’t have to be worse than a sharp stick in the eye. You can dodge a good deal of the difficulty if you’re careful and you approach the process with reasonable expectations. Just remember there is no “Easy Button” to push to make it happen overnight.

Know that getting out of debt means more than paying off credit cards. It means overhauling the way you’ve been spending your money and the things on which you’ve been spending it. It means learning how to budget, tracking your expenses, prioritizing your debts, creating emergency and retirement funds, and knowing where to find help.

And it means staying away from the major mistakes we’ll outline next.

Not Changing Your Spending Habits

Is your purse or wallet on autopilot, taking you to Starbucks every morning and to the grocery store without a list? Does it give you an irresistible urge to buy the newest iPhone? Pick up dinner at Applebee’s on the way home from work? Such routines make your life comfortable, convenient, and cool, but they also allow money to needlessly leak from your bank account. Those overspending examples are just symptoms. To root out the problem, think about what you were thinking about when you bought those things. The answer is probably “nothing.” You were on autopilot. Turn it off, track your spending and turn on the savings.

Trying to Dig Out of Debt Alone

You can do it by yourself, but you can do it more easily with a little help. Yes, asking for help indicates you have a problem, and some people don’t want friends or relatives to know that. If that’s you, get over it. Free and confidential help is available at nonprofit credit counseling agencies, which are staffed by trained and certified counselors. They can suggest debt-relief solutions like debt management programscredit consolidationdebt settlement or even bankruptcy if your financial ills need strong medicine. Counselors can also formulate a budget and help you learn how to stay out of debt for good.

Signing Up for an Illegitimate Debt Relief Program

Sure, debt relief programs can dig you out of your financial hole. But remember that digging is work. If a program seems too easy to be true, it probably is. Don’t believe in debt relief magic. Debt relief scammers will make unrealistic promises and charge excessive fees. So, how do you choose a good debt relief company? Check them out through the Consumer Financial Protection Bureau, Better Business Bureau, or local state attorney’s office. If you’re looking for recommendations, credit unions, universities and military organizations should be helpful. Keep in mind that there is no quick fix. Debt-relief programs typically take 3-5 years to work, so be patient.

Not Creating a Practical Budget

At the risk of overstating things, getting out of debt is a battle. Try to wing it and you’ll probably end up waving the white flag. If your battle plan (your budget) doesn’t address necessities such as housing, food, transportation, health care, insurance, and education, it won’t be a fair fight.

Here’s a related booboo: Not going cold turkey on your credit cards. (We’ll pause now to let Visa addicts finish their seizures.) Once you learn how to just say no to your plastic, you’ll think twice before you pay cash for things like dining out, movies, leather boots and electronic gizmos.

Trying to Pay Off Multiple Debts at Once

There are bills you must pay each month, like mortgages, auto loans, utilities. Then there are bills you can pay a portion of, like credit cards. People often try to address each of them month. Bad move. The better move is to use the debt avalanche method. Pay the most expensive one off first. That’s the bill with the highest interest rate. It makes more mathematical sense to pay $100 toward a debt with 18% interest, than $50 toward that debt and $50 toward a debt with a 6% interest rate. Take care of the higher-interest debt first, then work your way down.

Closing Accounts When They Are Paid Off

Once you’ve finally paid off a credit card, two urges hit. You want to celebrate, and you want to close the account and bury that sucker once and for all. Follow through with the first urge. But the second one will hamper your financial recovery. Don’t close the account. It sounds counterintuitive, but it’s best to keep unused credit cards open. Credit scoring models reward consumers for having long-standing credit accounts and for using only a small portion of their credit limit. Unless the card has a ridiculous annual fee, keep it. Just don’t use it.

Borrowing From or Ending Contributions to a 401(k)

Maybe that chunk of money in your retirement fund is singing a siren song, trying to lure you into using it to pay off your debt. Plug your ears! Be strong! Why? Because there are usually stiff financial penalties if you withdraw money early, and because many companies at least partially match your retirement contributions. That’s free money.

Oh yeah, and also because that fund is meant to make your retirement all you want it to be. Chances are, you don’t want to die of old age with a McDonald’s uniform on. Your golden years aren’t meant to be spent working at the Golden Arches.

Not Setting Aside Emergency Savings

We can hear your cry of anguish from here: Wait! You’re already asking me to pay off my credit cards and loans and cut down on my spending and live like a hermit in the woods, and now you’re telling me I somehow need to be saving money for an emergency, too? Our response: What are you going to do if your car breaks down or your roof springs a leak or your dog bites the neighbor and you need a lawyer? It’s a mistake not to squirrel away 3-6 months of expenses in an emergency fund. Put 5% of your income toward covering life’s unexpected problems. If nothing else, you’ll probably sleep a lot better.

Not Verifying Your Credit Report Is Correct

The number of complaints about credit report errors doubled from 2021 to 2023, according to a recent study by Consumer Reports. The study also found that about 13% of consumers had errors on their report that affected their credit scores, and 5% had errors that raised their interest rates or even resulted in a credit denial. If you aren’t checking your report’s accuracy, you could end up paying for somebody else’s mistake.

You should know that the three major credit reporting bureaus – Equifax, Experian, and TransUnion – allow you one free credit report a year. Look for incorrect delinquencies and/or inaccurate balances that hurt your credit score and make it harder to get a loan, and report a credit dispute.

Not Prioritizing Your Debt

Unlike the federal government, average Americans can’t just keep piling up debt as if it will never come crashing back down on them. Due to interest rates, your financial hole is only going to get bigger if you ignore it. Focus on the problem, and the solution. The simplest solution is to make a plan, get a budget and stick to it. If you need help, millions of Americans have found relief by consolidating their debts into one monthly payment through a debt management program.

Not Transferring Your Balance to Better Credit Cards

Credit cards are not inherently evil. Truth is, they’re quite handy when used properly. Imagine you owe $4,000 on a credit card with a 15.99% interest rate. If you shift that to a card with a 0% rate for 18 months and pay $225 a month, you’d save $600 in interest. So don’t ignore the chance to apply for a balance transfer credit card with a 0% or very low introductory interest rate and transfer your old credit card debt to the new card.

Just remember, it’s an “introductory rate.” When it expires, that rate will skyrocket. If you don’t pay it off in the allotted time, you could end up in worse shape than you started.

How to Pay Off Debt Faster

All that belt-tightening probably won’t be fun (have we mentioned that yet?), but it will accelerate your financial recovery.

These steps for how to get out of debt fast should also allow you to reward yourself with an occasional night out or round of golf:

  • Pay all bills on time: You’re just giving away money when you’re late paying monthly bills. Late fees are a gold mine for credit card companies, landlords and banks. They don’t have to do any extra work to collect extra money. Don’t give away your dough.
  • Garage sale anyone? Nearly everyone has old games, computers, exercise equipment, furniture, clothes, and tchotchkes they simply don’t use or want anymore. Let someone pay you to take away your junk.
  • Unbudgeted income: You may get a tax refund or payment from an estate you never expected. Forget about a weekend vacation. Spend the money on reducing debt.
  • Ask for a rate reduction: Now that you’ve educated yourself about the interest rates you’re paying, especially on your credit cards, you can try to do something about them. If you have been a consistent, on-time payer, your card company will want to retain your business. Tell them they can … if they drop your interest rate to the lowest levels. This is one area where “Ask and ye shall receive,” should actually work.
  • Ask for a raise: We mentioned this earlier and pooh-poohed the likelihood it would work. But what’s the harm in trying? Businesses have been flush with money for a while, and recent tax cuts should make their bottom lines even bigger. Unemployment is low. The combination means it might be a good time to get a raise. The worst that can happen is you get another “No!”

Tools and Resources

You can do everything but whistle Dixie on your phone, right? (Come to think of it, maybe you can whistle Dixie on your phone. If there isn’t an app for that already, there surely will be soon.) So it shouldn’t come as a surprise that you can use SmartPhone apps to, well, make you smarter about getting out of debt.

There are debt payoff apps for managing your debt, including budgeting apps that break down your income and track and categorize your spending, payment planning apps to help you understand which debts require your immediate attention, and automated payment apps to make sure you’re never late paying a bill.

There are debt calculator apps and even apps designed specifically to help repay debt as you’re actually spending money. They round up a purchase price to the nearest dollar and funnel the difference to your debt.

The point is you don’t have to resort to an abacus to perform all the mathematical functions involved with efficiently eliminating your debt. A quick Google search will turn up plenty of practical options to help you through this journey.

And don’t forget you have access to free financial planning services through a nonprofit credit counseling agency, which, among other benefits, can help you determine if a debt settlement plan or bankruptcy might be your best option for relief from especially large debt.

Your Path Out of Debt

Getting out from under debt can be life changing. The bottom-line ramifications are obvious. Your credit score improves, which opens doors to financial opportunities not available when you’re buried by bills. You can more easily invest in your future and build wealth in the present.

But living debt-free has less tangible, and just as important, advantages, too. Studies have shown that problem debt is connected to negative mental health issues, while eliminating debt stress increases mental, emotional, and even physical well-being. You’ll feel better, sleep better, live better, be better without the debt albatross dragging you down.

Why wait any longer? You can start right now by implementing the strategies we’ve discussed in this article. Choosing a method that best suits your situation is the first step towards financial freedom.

And remember, help is always available on this journey. If you’re still flummoxed by your debt, find a nonprofit credit counseling agency online and go through one of their free credit counseling sessions. They help you sort out your problem; they help you set up an affordable budget; and they advise you on which debt-relief option best suits your situation. The counselors are trained and certified. And, best of all, it’s FREE!

About The Author

Bill Fay

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet.


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