If you’re in debt from credit cards, student loans, car loans and the like then you’re not alone.
The national household debt in the United States is at $13.54 trillion. It’s safe to say that debt has become a national epidemic and will probably continue to grow.
In the meantime, you’re probably receiving tons of junk mail offering you a “way out”. That solution is usually in the form of a debt consolidation loan, debt settlements, home equity loans, payday loans, etc. To be straight forward, none of these is a good idea.
If you’re wondering how to get rid of debt the right way, then keep reading.
How to Get Rid of Debt (the Right Way)
As mentioned above, proposed solutions to your debt nightmare usually come in the form of a loan. Paying off debt with more debt is just a bad idea in general. The only time it makes sense to take out a personal loan for something like credit card debt is if the interest rates are cut in half and you’re able to continue making large payments each month.
Consolidation companies will try to reel you in with low-interest rates and smaller monthly payments. Sadly, what they’re really doing is stretching ALL of your debt out over an extended period of time which will cost you even more money in the long run.
Debt settlement companies promise to negotiate with your creditors to reduce what you owe. But they’re really not doing you any favors since the first thing they’ll tell you to do is not pay your monthly payments. Not only will this hurt your credit score, but it’ll cost you a lot in fees—not to mention the fact that many of these companies will take your money and just disappear.
Home equity loans and payday loans are an absolute NO as well. First of all, you should never EVER borrow against your own home. Secondly, if you’re thinking about applying for a payday loan, make sure you have the money to pay it back by the due date. You can read about what happens when you don’t pay a payday loan back here.
So, what does getting out of debt really take?
Creating a Budget
The first thing you want to do is just lay down all your cards (metaphorically speaking of course. You’re not going to want to use your credit cards for a long time).
Make a spreadsheet of all your monthly expenses—rent, bills, groceries, leisure activities, etc.—and compare those expenses to how much you make after taxes. From there you figure out where you can cut costs.
And when I say cut costs I mean REALLY cut costs. This could mean anything from cutting your own hair to changing your own car oil.
There are two ways to pay down debt:
- Pay off your highest debt first.
- Pay off your lowest debt first.
The idea behind paying off your higher debts first is that you’re also tackling higher interest rates. If you’re only paying the minimum each month on a high-interest rate credit card, then you’re fighting an uphill battle. In other words, all of your money will be going to the interest and not the principal balance.
If you choose to get aggressive with your high debt balances first, make sure you’re paying as much above the minimum payment as possible. Even as that debt diminishes, continue to pay that same amount each month.
If you can’t afford to pay well above the minimum payment on your larger debt, you may be able to do so with a smaller debt amount. If this is the case, then pay as much as possible each month on your smaller debt while paying the minimum on the others. It may not seem as efficient as paying off a larger sum of money, however, it will do wonders for your mental health and bank account.
The most important part of these strategies is in the monthly payment. For example, if you’re paying $500 per month on a larger debt, once that debt is paid off you can apply that same amount to your smaller debt and then some. This also works the other way around if you choose to pay the smaller debt amount first. This strategy is called the debt snowball method.
Embracing a Side Hustle
Your 9-5 can be tiring, I know. But that shouldn’t stop you from putting your talents to use, especially if you need extra cash to pay down your debts.
There are plenty of side gigs out there and plenty of platforms you can use. Sell your artisan crafts and products on Etsy, start a blog, become a social media influencer, or sell your services as a freelancer.
If you don’t feel as if you have any marketable skills to sell, you can consider renting out a room or your whole house on Air BnB, driving for Uber, Lyft or even a delivery service like Door Dash. There are even platforms for dog walking services—the possibilities here are endless.
You can also consider selling your clothing, unused devices, furniture, etc on a number of different apps. You can even look into dropshipping.
Of course, you can also sacrifice your weekends to work as a server or bartender. Depending on where you work, you could end up making a few hundred dollars a night. Although, if you’ve had any experience in the hospitality industry then you know that dealing with drunk and/or hungry people can be very challenging.
You Can Do This
Being in debt is nothing to be ashamed of. After all, you’re not the only one wondering how to get rid of debt. It’s very easy to overspend, but going forward, just remember to be frugal and only spend on what you need—not what you want.
Here’s your mantra: if you don’t have the cash for it then you don’t have the credit for it either!
For more resources on dealing with your finances—and life—check out the rest of my blog.