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Overwhelmed by debt? Here are 7 actions to take today

get out of debt

A variety of life circumstances can prompt you to get out of debt. Sometimes, it's that payments are restricting your monthly cash flow, causing financial stress or preventing you from spending, saving and giving the way you'd prefer. Other times, you know that you want to make a big purchase in the future, like buying a house, and getting rid of some ongoing payments could help unlock better loan deals.

While being debt-free is an admirable goal, many people benefit more from paying off high-interest debt. These are debts that are restricting your ability to spend and save and give according to your values. Lower-interest, long-term debt like mortgage loans may not cause as much disruption. When you're ready to get serious about getting out of high-interest debt and reducing your financial stress, it can be liberating and empowering. That said, it does require getting organized first. Here are some strategic steps to get out of debt.

7 ways to help you get out of debt

1. List all your relevant debt information

Even if you usually just pay the minimum on your bills and move on, the first step to getting out of debt is to really understand your debt picture. This means figuring out how much debt you have, what each debt's interest rate is and how much you should pay per month on each debt. It can also be helpful to include the term, or how long you are going to be paying this loan.

Then you'll want to look at your income and spending: Are you spending most of or even more than your paycheck each month? Writing out your standard expenses and your typical take-home pay helps you to understand where your money is coming from and going. This step will help you understand how much cash flow (or income) you have to dedicate to getting out of debt. This isn't about right and wrong—though if you identify any wasteful spending, it's not a bad idea to cut where you can. In most cases, however, people simply take a different approach to debt pay-off depending on how tight the budget is currently.

2. Work on cutting expenses or increasing income

Once you've got your schedule, get into the nitty-gritty of cutting expenses, reducing savings or adding income. A good place to start is to think back a few years and evaluate any lifestyle inflation or nicer things you've grown accustomed to that you lived without in the past. Cutting these extra purchases out temporarily could really help with debt pay-down.

Here are just a few other ways that people have modified their budgets and income in order to pay down debt:

  • Get serious about meal preparation with less-expensive ingredients bought in bulk. Freezing big batches of meals can make food costs lower and make dinner just as convenient as eating out but with less cost.
  • Let your boss know that you are open to doing additional hours of work if the team needs overtime if applicable.
  • Talk to family and friends about doing a few odd jobs on the weekends, then immediately put any earnings toward your debt.
  • Rent out a room in your home to someone who needs a place to live. Or consider living in a shared house or apartment rather than a single-family residence.
  • Aim for staycations and regional vacations when you have time off, especially when you can stay at your family or friend's place rather than paying for lodging.

Remember, as soon as you finish paying a debt, that previously allocated money will be freed up in your budget, making room to pay extra on a different loan or credit card. Paying down debt rapidly to remove a bill from your budget can make other cost-savings measures less necessary as you progress through your debt management journey.

3. Set a goal timeline to pay down debt

Many people are motivated to pay down debt by setting a concrete goal and working to achieve it. You start by looking at how much you could reasonably divert from other parts of your budget. This helps you come up with an approximate "extra payment" amount that you can afford each month. You don't necessarily have to cut expenses if there is a way to raise your income or reallocate savings in some way. Most people find these extra payments come through some combination of reduced savings, reduced spending or taking on extra work.

Use those monthly numbers to see when it would be reasonable to achieve your first goal: maybe paying down a single credit card balance or one loan. The goal doesn't have to be enormous, but naming it by saying something like, "I want to be credit-card-debt free in 24 months" or "I want to pay off my student loans within six years" can help you identify progress over time.

4. Choose your payment strategy

People commonly choose two ways to pay down debts. Both involve putting all the extra payments toward just one source of debt, even if you have multiple loans and credit cards.

The snowball method involves finding your smallest debt and paying down the balance as quickly as possible while making minimum payments on everything else. This gives you a quick win, building a feeling of victory and momentum. You can then start putting all extra payments toward the next-smallest debt, creating a snowball effect.

The avalanche method involves paying down the debt with the highest interest rate first while making minimum payments on other debts. Once that debt is gone, you aren't paying quite so much in interest costs, and you can start working on the debt with the next highest interest rate.

In either case, the goal is to give you a feeling that you're making progress even if you're giving up some everyday luxuries or making other pragmatic choices to reach your debt goals.

5. Use your goal and strategy to draft a schedule

Once you've picked your goal, we recommend writing out a schedule of how much you want to put toward each debt each month. By laying out all the numbers, you'll be able to check off each month's extra payments and notice yourself progressing. Don't worry if you have to revise the schedule; just remember how motivating it is to see that progress. Sticking with the schedule can reinforce your habits.

6. Shift the schedule when life happens

Be aware that life sometimes throws us unexpected bills and costs. It's important not to get discouraged if an unexpected expense sets back your debt pay-down schedule. If it feels like you're putting too much money toward debt and not leaving enough to handle emergencies, consider slowing down on your debt pay-down schedule. Create an emergency fund with at least three months' expenses so you don't have to go into debt for unexpected emergency costs. Then rewrite your schedule based on the new situation and get back on track.

7. Let windfalls boost your momentum

Many people occasionally find themselves with random non-paycheck income. It could be a tax refund that's bigger than expected, a gift or inheritance from a family member, or a bonus at work. Even when windfalls seem small, it's wise to take advantage of them because they are money you haven't budgeted already.

If you're in debt pay-down mode, consider putting 50% or more of any windfall toward debt. This way, you still get the benefit of a little extra money in the budget but you also can get ahead on your debt payment schedule. It really can help you feel like you're making progress while still letting you enjoy some budget wiggle room.

Customizing strategies to your needs

You can get out of debt on your own, but like so much else, having an expert along on the journey can be very helpful. Talk to a financial advisor, who can help you create a plan for getting out of debt that factors in your own preferences and needs. They'll help you identify which debts are low-interest and have manageable payments versus the kinds of debt that can cost you a lot in interest and keep you from achieving your goals. Understanding not only how to get out of debt but also how to manage reasonable debt will set you up for the next stage in your financial journey.