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Get Out of Debt Now: The Steps You Need to Take for Financial Freedom

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Too much debt can leave you feeling stuck and as if you’re in a hole you’re never getting out off. You may think that the only way out is to get a raise or receive a windfall of money from some transaction. If you find yourself in this situation, you’re not alone. And fortunately, you can escape from this seemingly endless journey and get your financial act straightened out for the future. So, what’s the plan?

Your debt isn’t going to pay itself off, so don’t be afraid to take matters into your own hands. Get organized, develop a plan, and pay off your debt as fast as possible.

This guide highlights practical tips that can help you pay off your debt faster and ensure you do not end up in the same stalemate again.

American Debt Statistics

Get Out Of Debt

When it comes to debt, the American population is generally in bad shape. Here are some crucial debt statistics to provide some insight.

  • As many as 8 out of every 10 Americans have consumer debt
  • Mortgage makes for the largest debt in the country (with the average household owing $189,586). This is followed by student loan debt ($46,822 per household), auto loan debt ($27,804 per household), and credit card debt ($5135 per household).
  • Mortgage excluded, the average consumer debt is $38,000.
  • The 45 – 54 age group has the highest debt burden in the country (but also earns the most money on average).
  • The three main reasons why Americans go into debt are medical costs, home improvements, and having children.
  • About 13% of Americans expect to be stuck in debt throughout their life.
  • About 19% of Americans have not set any money aside for emergencies.

MAP your debt reduction strategy

Map Your Debt Reduction Strategy

The first step to paying off your debts is to know where you stand. Only then can you create a strategy to help you work your way from this situation. Follow the steps below to map your debt reduction strategy.

  • Make a list of all debts with the interest rate, minimum monthly payment, and total balance for each. This will help you determine which debt should be paid off first and how much you can realistically afford to pay each month. Consider using tools such as https://unbury.me/ and https://undebt.it/. These are the sites we recommend to help you know how long it’ll take to pay off your debts based on debt amounts, interest rates, and minimum payments.
  • Create a debt management plan. This should include an estimate of how much you can afford to pay each month, as well as a timeline for when you plan to pay off each debt. Also, consider consolidating debt, such as combining multiple credit card balances into one debt consolidation loan with a lower interest rate.
  • Stick to your plan. Make sure you are paying off each debt on time and in the amount you committed to in your plan. If you miss your debt payments or don’t pay enough, you could face late fees or other penalties.
  • Re-evaluate your debt reduction plan every few months to make sure you are on track to reaching your goals. If you find that you are not able to repay your debt as quickly as you had planned, consider adjusting your payments or timeline.

How Does Debt Consolidation Work

How does debt consolidation work

Debt consolidation is a form of debt refinancing that involves taking out a single loan to pay off multiple unsecured debts. This type of loan is usually taken out at a lower rate of interest than the average interest rate of the original loans, thus resulting in lower monthly payments and more manageable debt.

Debt consolidation loans are secured by collateral (such as a home or car) that the lender holds as security in case you default on. When the debt is paid off, you are left with one loan instead of multiple bills to pay each month. It is important to note that debt consolidation does not reduce the amount of debt owed, but it can make it easier to manage by combining multiple payments into one.

Which debts should you prioritize?

When it comes to paying off debt, it can be overwhelming to know where to start – especially when you have one too many. Whether you have multiple credit cards, student loans, or medical bills pending – here are some tips to help you identify which debts should be paid off first.

  • Start with high-interest debt – paying off high-interest debt should be your top priority. The higher the interest rate, the more you’re paying in the long run. Consider starting with the debt that has the highest interest rate, then work your way down.
  • Consider the total amount owed – if you have several debts with high-interest rates, consider focusing on the one with the lowest total amount owed. Paying off the smallest debt first can give you a sense of accomplishment and make it easier to stick to your debt payoff plan (see more on debt snowballing in the section below)
  • Prioritize secured loans -secured loans, such as a car or mortgage, are attached to collateral, meaning the lender can repossess the item if you don’t make your payments. It’s important to prioritize these loans to avoid losing any property.
  • Prioritize debts with late fees – if you have a debt with late fees, make it a priority to pay it off as soon as possible. The longer you wait, the more likely it is that you will pay late fees and the harder it will be for you to get back on track.

Paying off debt can be a long and difficult journey, but it’s important to remember that every little bit counts. Our financial planning app and course can help you with debt management by making this process easier and more manageable.

What Is Debt Snowballing And How Can It Help?

What is debt Snowballing ☃️ and how can it help?

Debt snowballing is a popular debt repayment strategy that can help you manage and eliminate your debt. It involves paying off debts from smallest to largest (beginning with the smallest balance first) regardless of interest rate. You make minimum payments on all your debts except the one with the smallest balance. Any extra money should be put towards paying off that debt as quickly as possible. Once the smallest debt is paid off, you can then move on to the next smallest debt, and so on.

The debt snowball method is beneficial because it helps you stay motivated and disciplined when paying off debt. By seeing progress and paying off one debt at a time, you’ll be more likely to stay on track. You’ll also have the psychological satisfaction of being able to pay off a debt completely.

One drawback of the debt snowball method is that it doesn’t consider interest rates. Although you’ll be able to pay off your debt faster, you may end up paying more in interest because you’re not focusing on the debts with the highest interest rates first.

13 Action Steps To Get Out Of Debt

13 action steps to get out of debt

This section highlights actionable strategies that can help you pay off debt faster.

1. Take advantage of low-interest offers

If you have multiple current debts with high interest rates, consider transferring them over to a credit card with a lower APR (annual percentage rate).

Many banks offer promotional 0% APR periods for up to 12 months if you transfer over balances from other cards, which can give you more time without accruing any additional interest charges.

Just make sure that once the promotional period ends, you’ll be able to pay off the balance before the interest rate jumps up again.

2. Frugal living and wise shopping

One way to free up more money for paying down your debts quicker and achieving your financial goals is by cutting back on non-essential spending. This includes things like eating out at restaurants or buying new clothes every season.

Before making any purchase, ask yourself if it is absolutely necessary and if it fits within your budget. These small changes can add up quickly and give you more freedom when it’s time to make those payments each month. Consider taking part in activities like potlucks or movie nights at home instead of dining out; they’re just as enjoyable and cost less!

3. Adopt the envelop system

This is a debt repayment strategy that entails setting aside a certain amount of money each month and using that money to pay off debt. The idea is to prioritize your debts, with the goal of paying off the highest-interest debt first. The Envelop System was introduced in the late 1990s by Dave Ramsey and can be a good addition to your toolkit because it emphasizes discipline to make sure you are making progress.

4. Cut down on investing

Investing can be a great way to build wealth, but it can also be a major source of debt if you’re not careful. Here are some tips for reducing your investing and decreasing your debt.

Evaluate your debt situation. Do you have high-interest credit card debt, student loans, or other types of debt? Knowing the type and amount of debt you have will help you determine how much you can realistically reduce your investing.

Take a close look at each of your investments and consider whether they’re helping or hindering your debt reduction efforts. You want to focus on reducing your investments and using the extra money to pay off debt.

If you have investments that are performing poorly or are too risky for your current situation, consider selling them or reducing your exposure to them. Many investments come with fees and other costs that can add up quickly. Look for ways to reduce these costs, such as low-cost index funds or no-fee ETFs.

5. Get something else going

What else could you do to bring in some extra income? This could make a lot of difference to your debt repayment strategy. You can consider varied opportunities from selling unwanted items online or in a yard sale, to finding a part-time job to supplement your income.

The important thing is to create a second stream of income that can be dedicated to reducing your debt. By supplementing your income, cutting back on unnecessary expenses, and staying on top of your payments, you can start to make a real dent in your debt.

6. Ditch the entertainment 🕺

Taking a break from entertainment and focusing on reducing debt can help you get back on track financially. First, take a look at your entertainment budget. How much do you spend on movies, concerts, meals out, streaming services, etc.? Write down everything you spend money on for entertainment, and then decide which activities you can live without for a while.

You don’t have to give up all of your entertainment, just the ones that are costing you the most money. There are plenty of ways to have fun without spending a lot of money.

  • Instead of going out to dinner, try cooking at home.
  • Instead of going to the movies, get a Netflix subscription.
  • Instead of going to a concert, find a free or low-cost show in your area.
  • Look for free or low-cost activities (free events, outdoor activities such as biking and hiking, free museum days, etc.).

The list goes on and on…

7. Say NO 🙅‍♀️🙅‍♂️

If you are considering taking on more debt for some reason, take a step back and think about the consequences. Ask yourself if you really need the item or service you are thinking of buying. Do you already have something similar at home? Is it something that you can live without? Can you save up for it instead? Saying NO can help you to stay within your budget and reduce the amount of debt you have.

8. Choose inexpensive hobbies

Choose inexpensive hobbies that you can enjoy without breaking the bank. For example, try a new hobby like photography or painting. You can purchase the supplies for a fraction of the cost of a new car or a vacation. Reading can also be an inexpensive hobby, and you can borrow books from the library for free. You could also try gardening or taking nature walks. These activities help you to create memories and bond with family and friends without spending a lot of money.

9. Create a smart shopping list

When creating a grocery shopping list, start by making a list of all the items you need. Be sure to include items that are necessary and items that are on sale. Once you have created your list, make sure to stick to it when you go to the store. This will help you stay within budget and avoid impulse purchases.

Additionally, it is important to compare prices between stores and take advantage of store discounts and coupons when available. Consider shopping for non-urgent items around discounted seasons. following your list, you can easily make smart decisions when shopping for groceries (thus freeing up more money to pay off your debts).

10. Get a meal plan 🍽️

Save money by not eating out (as much as possible). Consider buying food in bulk and planning meals based on what’s on sale that week. This can help avoid impulse purchases.

Additionally, use leftovers and make sure that nothing goes to waste. This could help you stretch your food budget and save money in the long run. As an added advantage, set up your meal plan to ensure that you’re getting a healthy, balanced diet – which can in turn help you stay healthy and save money on medical bills.

11. Stop comparing yourself

It can be easy to get caught up in comparing yourself to others and their financial situations, but this will only lead to feelings of jealousy and insecurity. Instead, focus on the steps that you can take to reduce your own debt. Make a budget, track your spending, pay off your debts with the highest interest rates first, and look for ways to increase your income.

12. Get some family support

Having family members provide emotional and financial support can make a big difference to help you pay down debt. It’s important to have people who care about you offer a helping hand (emotionally or financially) as you embark on your journey. When you have this kind of support, some of the financial pressure that comes with being in debt dissipates and frees your mind to focus on solutions.

13. Get a part-time job

Getting a part-time job can be a great step to help reduce your debt. It can give you extra money to put towards your debt and help you pay it off faster. You can use the extra income to pay down high-interest credit card debt, student loans, or other forms of debt. A part-time job can also give you the opportunity to build new job skills, gain valuable work experience, and meet new people.

Check our guide on the top side hustle ideas in 2023

Loopholes/Mistakes to avoid when paying off debt

Loopholes/Mistakes To Avoid When Paying Off Debt

Living in debt can make you feel overwhelmed. In the process of trying to get out of the dark cloud, it’s easy to make mistakes. Here are some major debt repayment loopholes you’ll want to avoid.

👉 Not Creating a Debt Repayment Plan

It’s important to create a debt repayment plan that outlines the monthly payments you need to make and the timeline for when each debt will be paid off. Without a plan, you may find yourself making minimum payments that don’t help you make progress.

👉 Not Budgeting

One of the most important steps in paying off debt is to create a budget. This will help you identify areas where you can cut back spending and free up more money for debt repayment.

👉 Not Prioritizing Debt

When you have multiple debts, it’s important to prioritize which ones to tackle first. Paying off the debts with the highest interest rates or smallest balances first can save you a lot of money in the long run.

👉 Not Taking Advantage of Lower Interest Rates

If you have a good credit score, you may be able to refinance your debt at a lower interest rate. This will help you pay off your debt faster and save money in the process.

👉 Not Making Extra Payments

Making extra payments on your debt can help you pay it off faster. Every extra payment you make goes directly toward your principal balance, which can help reduce the amount of interest you pay overall.

👉 Not Taking Advantage of Tax Deductions

If you have student loan debt, you can take advantage of the student loan interest deduction. This can help you save money on your taxes and free up more money for debt repayment.

👉 Not Taking Advantage of Balance Transfer Offers

If you have credit card debt, you may be able to take advantage of a balance transfer offer. This can help you reduce the interest rate on your debt and free up more money for debt repayment.

👉 Not Consolidating Debt

Got multiple debts? Consider consolidating them. This can help you make one monthly payment (instead of multiple payments) and save money on interest.

👉 Not Seeking Professional Help

If your debt is overwhelming, it may be time to seek professional help. A debt counselor can help you create a repayment plan and negotiate with your creditors to reduce your interest rates or monthly payments.

Tips to build up your credit score

Tips To Build Up Your Credit Score

If you’ve been struggling with debts, chances are that your credit score is in bad shape. Building it up is important for your financial health because your credit score is a reflection of your financial behavior and is used to determine your creditworthiness.

A good credit score can open the door to low interest rates on mortgages, car loans, and credit cards. It can also help you qualify for things like apartment rentals, cell phone contracts, and certain types of insurance.

What’s more, you get peace of mind when you know that you’re in good financial standing.

👉 Follow the steps below to rebuild your credit score.

  • Pay your bills on time – one of the most important factors to building a good credit score is making sure you pay all your bills on time (before the due date).
  • Monitor your credit report – you can check your credit report for free at least once a year on the government-mandated website AnnualCreditReport.com. This will allow you to check for errors or issues that may be affecting your credit score.
  • Keep balances low on credit cards – high balances on your credit cards can make it difficult to improve your credit score. Try to keep your balances low on your credit cards and pay off the balance in full each month.
  • Don’t close unused credit cards – closing an unused credit card can have a negative effect on your credit score because it reduces the amount of available credit you have. Try to keep your credit cards open, even if you don’t use them.
  • Don’t apply for too many credit cards at once – applying for too many credit cards at once can also have a negative effect on your credit score because it can appear as if you’re trying to take on too much debt.
  • Don’t open multiple accounts at once – this can adversely impact your credit score because it may appear as if you’re trying to take on too much debt.
  • Use secured credit cards – secured credit cards can be a great way to build your credit score. They require a security deposit that becomes your credit limit and can help you show lenders that you are a responsible borrower.
  • Ask for a credit limit increase – if you have a low credit limit, you may want to ask your credit card issuer for a credit limit increase. This can help you improve your credit score by increasing the amount of available credit you have.
  • Make payments twice a month – making payments twice a month can help build up your credit score because it can show lenders that you are consistently paying off debt. This will also help avoid late payment fees.

How to stay clear of debt in the future

Debt is something that no one wants to deal with, and it can be hard to get out of once it has been acquired. Fortunately, there are some simple steps that can be taken to help you stay clear of debt in the future.

Start by paying off any existing debts as quickly as you can (use the actionable steps we have provided in this guide). Once this is done, focus on creating a budget that you can stick to. This will allow you to track your income and expenses and make sure you are living within your means. Stay on top of your spending habits to avoid unnecessary spending. You’ll also want to save money to take care of unexpected expenses or emergencies.

Additionally, you should make sure to pay off any existing debts as quickly as possible. Consider setting up automatic payments for your bills to ensure that you are taking care of all your payments on time.

Furthermore, learn to use credit cards wisely so you do not spend more than you can afford.

FAQs

What is the debt snowflake? ❄️

Snowflake is a debt repayment strategy that can supplement your existing approach. It focuses on the small bits of “found money” that you have. Think about the $20 bill you forgot in your pants pocket and the change that somehow make its way to the bottom of the couch. You can use this money to pay down your debts based on the plan that you already have.

What is the debt avalanche method? 🗻

This is a debt repayment method that prioritizes credit card balances or loans that carry the highest interest rate. The idea is to start by taking care of these and once they are paid off – move on to the loan with the next highest interest rate. This ensures that you save money (over time) as you pay off your debts.

How does budgeting help you get out of debt?

Budgeting is a key component of getting out of debt quickly. Start by tracking your income and expenses and cutting out any unnecessary spending. Make sure you are making at least the minimum payments on all of your debts and devoting any extra money to the debt with the highest interest rate.

You should also look for ways to increase your income, such as taking on a side job or selling unused items. Finally, create an emergency fund to cover unexpected expenses so you don’t have to take on more debt. Use the Grow Today app to automate everything so that you don’t have to worry about lagging behind on your payments.

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