The problem with debt is that it tends to keep growing—regardless of whether or not you’re currently in a financial situation equipped to pay it off. Whereas people with extra income may be able to rapidly “zero out” their balances, most of us have to figure out how to balance the expenses of living with tackling debt. That is to say, most people don’t have a stockpile of money sitting around to devote to debt repayment; it becomes a matter of figuring out how to make the most of every penny through a savvy combination of budgeting, strategizing and possibly even picking up a “side hustle.”
It’s entirely possible to wriggle out of debt, even when times are tough. While it can be challenging in the present, it’s highly important to prioritize repaying debt so you can avoid mounting interest fees that will make it even tougher in the future.
Set Yourself Up for Budgeting Success
The only way to wring extra money out of your income is to budget. This will provide a framework for assessing your earnings and expenditures honestly. The hope is that you’ll notice areas in which you can cut back even more, thereby freeing up extra funds to devote toward debt elimination.
What are the hallmarks of a good budget? According to The Balance, these are some factors of the most successful budgets:
- Accurate, detailed spending categories: Your budget will work best if its customized to reflect your actual spending patterns. If you’re using a template, make sure it has sufficient spending categories that match your lifestyle. Another way to achieve accuracy is to use a budgeting app that’s tailor-made to your needs.
- Accurate income: Make sure your budget reflects how much you actually take home each pay period. Take out taxes, 401k contributions, investments and savings before thinking of the remainder as spendable.
- Flexibility: Some months will include irregular expenses. Make sure your budget can accommodate non-monthly expenses. An example would be auto insurance premiums you pay yearly or bi-yearly. Keep track of due dates and incorporate these costs into your budget.
- A savings tracker: Budgets are about more than spending; they must also reflect how much you’re managing to save and tuck away for emergencies and retirement.
- Goals: Instead of treating your budget like a never-ending log of income and expenses, treat it like a practical framework for meeting your goals. To do so, you should include concrete goals directly within your budget as a helpful reminder.
Consider Various Debt Relief Solutions
Sometimes the most daunting part of figuring out how to eliminate your debt is doing it alone. While some people decide to tackle debt on their own, others find that using a more structured debt relief solution helps them stay organized and on track. There are a few viable options to consider here.
The first is debt settlement, which is an option for people with thousands of dollars of debt or more. Reputable programs through companies like Freedom Debt Relief require enrollees to deposit money into a dedicated, self-controlled account until they’ve amassed a certain amount. Then the program’s trained negotiators communicate with creditors in an attempt to reach a settlement that’s less than the original principal balance. The key here is finding a legitimate, reputable partner. Pro tip: A program will never ask you to pay any fees before they’ve settled your debt!
There’s also debt consolidation to consider, which entails taking out a personal loan to pay off multiple debts, then paying back the loan over time. While this doesn’t reduce the balance owed, it may help with pesky high interest rates so your debt doesn’t keep compounding at such a rate.
Pick a Strategy: Snowball or Avalanche
Tackling debt the do-it-yourself way? Decide on a strategy ahead of time for the best results. “Avalanching” involves paying the minimum balance on all debts while chipping away at the one with the highest interest rate more aggressively. Once it’s paid off, you get to work on the next highest interest rate. “Snowballing,” on the other hand, means working your way up from smallest balance to largest.
Wriggling out of debt when times are tough can be challenging, but very worth it. Work on optimizing your budget, researching debt relief options and strategizing in a way that motivates you.