Debt can be exhausting and stressful. It can also be hard to get rid of, and some people spend years or decades struggling with penalties and rising interest rates that stand between their attempts to become financially solvent. Paying off debt is never easy, but following the steps below can help.
1. Triage
If collection agencies are calling you or your car is in danger of repossession, this is the first place to tackle. In the next step, you can begin to look at how you will cut back on your spending over the long run, but for now, you may want to look at whether you can rearrange some payments to quickly change your cash flow and deal with any emergencies.
For example, if you have several student loans, you may be able to refinance them into a single payment with a private lender. This could result in lower monthly payments so that you have more money left to put toward your credit card bill.
Another possibility is looking for a credit card with a lower interest rate and rolling your balance from other cards onto that.
2. Budget
Over the longer term, you need a budget so you can figure out how you will keep up with current expenses and pay down the rest of your debt. To start with, you need to figure out your fixed expenses, such as rent.
For now, just focus on your present costs although later, you might decide to move or take other actions to cut your overall expenses. You should track your spending for a few months, either manually or using an app. When you make your budget, be sure to account for occasional or one-time expenses, such as birthday gifts, holidays and vacations.
3. Plan
Now it’s time to plan exactly how you will pay off your debts. You might want to look at some online calculators that can help you estimate how long it will take you to pay what you owe based on the different interest rates.
It’s handy here to have your budget because you can use this to figure out where you might be able to save on monthly expenses and put it toward your debt. You might want to focus on putting most of your money toward whatever debt has the highest interest rate, or you may want to try to pay off some small debts for the psychological boost. If you’re facing medical debt due to an emergency health situation, another option to access cash is through a viatical settlement, which can help pay off expensive medical bills.
4. Persist
This will be a long-term process, and it’s important to keep your spirits up throughout. There are lots of practical ways to save money, such as getting a roommate, staying home more and living in a less expensive place and driving a cheaper car.
However, while you may need to make some concessions to pay off your debts, you should build in some indulgences as well and be aware of any compromises that will make you miserable. If you do not, it will be difficult for you to stick with the plan long enough to pay off what you owe. It can also help if you set some financial goals for when you are finished.
For example, you might want to start saving toward buying a home, taking a trip or early retirement.
