Being able to borrow is a huge benefit when you need extra help, but debt is a huge burden that is very hard to dig your way out of. The problem is that debt creeps up on you over time. No one purposely goes into debt for tens of thousands of dollars. But little by little, it’s very easy to wind up owing so much that it’s almost impossible to see your way out of debt. Don’t be discouraged if this has happened to you. It’s happened to many good people throughout time. And there is hope. At first, it will feel like you’re just using a teaspoon to dig your way out, but over time and using the strategies below, you’ll be getting rid of your debt with huge shovelfuls.
Review the Interest You’re Paying on Debt
Interest is the biggest obstacle to paying down debt. To dig your way out, make a list of all your loans and credit cards and find out how much you’re paying in interest on each of them. To do that, dig out the disclosure papers you got when you first received your credit cards in the mail; they’ll tell you exactly what your interest rate is. Seeing this all lined up in black and white should give you extra motivation to pay off that debt. If you can’t find the disclosure docs, just examine your statements or call up each card company to find out.
Put Your Debt in Order of Interest Rates
Next, put numbers next to each debt in order of which one has the highest interest rate down to the lowest interest rate. This will tell you which debts are the worst and which demand your immediate attention. You don’t necessarily have to pay off the high interest cards first; just be aware of which cards are doing the most damage.
Pay Off at Least One Debt
Financial pundits will tell you to start paying off debts in the order of the highest interest rate. That makes sense as far as reducing the amount of interest you have to pay going forward. But it doesn’t make sense in terms of your own psychology and satisfaction. They key here is to stay motivated, and for that, you need to see some instant results. Take the lowest debt amount and pay that off. That will be the one you can most afford because it’s the smallest. If you can’t pay it off right now, at least chip away at it. Pay off as much as you can now, and then the next paycheck you get, pay off the rest or as much as you can. Getting rid of one entire debt—however small—will motivate you to keep paying down your debt, one by one.
Put That Card Away
Once you pay off once credit card, take it out of your wallet and keep it at home, tucked away. It will be there for an emergency, but you shouldn’t consider using it again for everyday purchases. If it’s not in your wallet, you can’t use it impulsively.
Make Double Payments on The Rest of Your Debts
Making minimum payments each month may feel easier on your budget, but it won’t help you dig out of debt. Commit to making double or at least one and a half times payments on each of the rest of your debts. For example, if your minimum payment is $25, pay $50 or at least $37. Do this every month going forward and you’ll see your debt going down much faster.
Ask For a Different Due Date
Most people can’t handle a huge cash outlay all at once for debt payments each month. It often helps if you can stagger your payments. If you have two payments that always come due in the same week, call up one of the creditors and ask if you can have a different due date. Most credit card companies are willing to help in this regard.
Pay Twice a Month
Another way to get relief from debt is to make two payments a month. Credit card companies don’t have a problem with this strategy and you don’t need permission to do so. Just log in twice a month and split your payment in two parts. For instance, if the minimum payment due is $25 and you want to pay $50, log in and pay the $25 by the due date, but then log in again and pay another $25 two weeks later. This will reduce your interest charges slightly and also lessen your cash flow burden by staggering that $50 payout.
Review Your Personal Loan Options
Another option for digging your way out of debt is to take out a personal loan. If the personal loan interest rate is less than your credit card interest rates, you’ll be making a positive step forward. Use the personal loan to pay off credit card debt and then use the same paydown strategies mentioned above to pay off the personal loan over time. If you can’t qualify for a personal bank loan, try a collateral loan against your vehicle. If that isn’t viable, consider a loan from a parent or close relative. Be sure to seal the deal with an official promissory note and, above all, make good on all of your payments so you can preserve your good relationship with your relative.
Use Your Tax Refund to Pay Down Debt
Instead of spending your tax refund on other things, use it to pay down debt. The peace of mind in knowing that you no longer have a hefty credit card debt far outweighs the short-term joy of having a brand new plasma screen in your living room.
Digging out of debt can be done. Others have done it and they may even have been in a far worse situation than you. Just keep at it and don’t let your motivation wane. Eventually, you’ll be debt free and you’ll be able to sleep better at night.