When you’re in over your head and drowning in debt, you may get a sense that everyone around you has it all while you’re struggling to keep afloat.
Maybe you’re even pretending everything is fine and money isn’t an issue but are constantly thinking about the mountain of debt you’re facing.
How did this happen? How did it get so out of hand? How will I pay this off? Where do I even begin?
80% of Americans Carry Debt
According to The Pew Charitable Trusts, 80% of Americans carry some form of debt, whether it be mortgages, auto loans, student loans, credit card debt, medical bills, or other forms of debt.
While I’d love to tell you getting out of debt will be quick and effortless, and that you’ll hardly notice a change in lifestyle, that simply isn’t true. In fact, when you’re struggling to pay off debt, you can become more vulnerable to making financial mistakes that make money matters worse.
You Need a Plan
In order to avoid these pitfalls, you need a plan.
Getting ahead financially isn’t easy, especially when it feels like the cards are stacked against you. But making progress – however little it may seem at the time – can eventually help you out of this stressful chapter of life.
The worst thing to do? Ignore it. You can’t make positive changes by ignoring the issues at hand. So, if you have had enough and are ready to make your move up the financial ladder, here are 11 steps to help you get there.
Actionable Ways to Tackle Debt NOW
1. Check Your Credit
This first step can be done in just a couple of minutes, so it’s an easy win. Checking your credit score and report will give you a good idea of how creditors are viewing your current financial state and the areas you should aim to improve upon.
Credit Sesame offers free credit report analysis and monitoring on an easy-to-use dashboard and much more.
2. Make a List of Where Your Money is Going
Sounds simple, maybe even silly, but be honest with yourself – do you have a good grasp of everything coming in and going out? It’s easy to overspend or underestimate how much things can cost, so take the opportunity to figure out where your money is being allocated.
It can be as simple as folding a piece of paper and writing “Money In” items on the left and “Money Out” items on the right. Or you could take it a step further by listing items in a spreadsheet; it’s completely up to you.
Here are some categories to mull over to help you get started: Income from your job or a side gig, mortgage or rent payments, utilities, internet, phone, gas, groceries, clothing, pets, insurance, student loans.
If you find yourself in debt, there are plenty of simple strategies for how to pay off debt.
3. Cut Out Unnecessary Spending Immediately
When you’re buried in debt, making a few extreme changes immediately to cut unnecessary spending can help save more money than you might imagine.
Cutting cable, for instance, could save around $150 per month, or $1,800 per year.
Cutting back on clothes shopping if you spend roughly $300 per month could save $3,600 per year.
Cutting out a daily $5 latte could save around $152 per month, or $1,825 per year.
Addressing those three categories alone could save upwards of $7,225 per year!
This is not to say your financial woes will self-correct by cutting out your daily coffee or things like avocado toast, but it does help demonstrate how easy it is to spend money without keeping track of where it’s going.
Remember, it’s okay to be ruthless about cutting back on expenses – if it gets to be too much, you can always add it back. This will help you pay off debt faster.
4. Ditch Subscriptions You May Have Forgotten About
After you cut out extra spending, it may be worthwhile to sign up for a free tool like Trim to make sure you didn’t miss anything – especially if you have a knack for signing up for free trials or subscriptions and then forget to cancel them.
The way it works is, Trim connects to your accounts and uses a special algorithm to securely comb through recurring transactions like gym memberships, box/media/magazine subscriptions, and cable TV contracts. It then brings those fees to your attention either via text message or Facebook messenger. If you no longer want or use them, you can direct the app to cancel it on your behalf, and if you want to keep the service, you simply do nothing.
5. Set a Budget
If you, like many others, feel icky about budgets in general, now is the time to shed that feeling.
Budgets are not bad. In fact, they can be empowering and help you stay on track to becoming debt-free. And, now that you know where your money is going and have cut back on unnecessary spending, taking the time to set a realistic budget you can stick to on a monthly basis is your next power move.
Don’t worry about making it perfect (because it won’t be and that’s okay), just simply start by writing out how you intend to use your money, keeping in mind that paying off debt is the primary goal.
Maybe that means your usual grocery bill gets cut in half from $400 to $200 per month, which could save you $2,400 a year.
Perhaps money spent on going out to eat or heading to the movies gets cut out until further notice while you use that money to pay off debt.
Maybe vacations or financing a new vehicle are out of the question until you have paid off a certain amount of debt.
These measures can seem extreme but if you’re drowning in debt, you need to be a little extreme. This is your life, and the sooner you can pull yourself out of this financial mess, the sooner you can move on.
6. Make a Reward System
It may sound odd to plan a reward system when you’re deep in debt but hear me out.
Planning small rewards for yourself along your debt journey can be a good way to stay motivated and could even inspire you to cut back further in certain areas of your budget in order to meet goals faster.
Some examples might include treating yourself to a nice lunch out after paying off $1,000 or treating yourself to a new outfit once you have paid off $10,000.
7. Contact Your Creditors
Communicating your situation to your creditors isn’t exactly exciting, but if you’re having trouble keeping up with payments (or aren’t making payments at all right now), it’s important to contact them immediately.
If you have paid your bills on time in the past, chances are they will be willing to work with you. This might mean rewriting your loans to extend your repayment period or lowering your payments to an amount you can afford so that regular payments can be made once again. You will still be on the hook for the full amount but tackling lower monthly payments may help make repaying your debts more manageable in the short term.
Whatever you do, try not to wait until your account has been turned over to a collection agency. Once that happens, it can be tougher to navigate and work on a resolution in your favor.
8. Pick Up a Side Gig
With so many options available in the gig economy these days, picking up a job on the side to make extra money can be incredibly rewarding, especially if you’re committed to throwing your earnings towards paying down debt.
The key is to make sure it’s flexible and pays enough to make it worth your time and energy.
For instance, if you’re trying to make some extra cash, driving with Uber may be a really good use of your time. You will have the flexibility to drive on your own schedule, which means you can earn money fast.
Survey sites such as Survey Junkie and Swagbucks can also be good standbys to make money on the side but the earnings tend to be smaller by comparison to other, more lucrative options. Still, they’re useful for earning rewards when you’re doing mindless things like waiting in line at the grocery store or waiting to get your oil changed.
Key Takeaway: The more money you’re able to put towards paying off debt, the faster you will be debt-free!
9. Start Saving Money
Saving money – even when you’re broke and in debt – is necessary to set you up for long-term success. Even if that means setting aside $5 per paycheck, commit to starting somewhere. While it’s not much, it’s a great habit to get into and can grow your nest egg over time.
Free savings apps like Digit are perfect for getting started since they automatically transfer the amount of money you specify to savings for you, while also making sure you have enough in your checking account to cover day to day costs.
Depending on your situation, you may also want to consider adopting a monthly savings challenge or committing to a “no-spend” month. These challenges are meant to help you reach a savings goal without affecting your lifestyle too heavily.
Savings challenge example: Save $161 in 28 days: Week 1 – Save $1 every day, Week 2 – Save $5 every day, Week 3 – Save $7 every day, Week 4 – Save $10 every day. At the end of the 28-day challenge, you will have saved $161!
No-spend month challenge example: A month-long commitment of only spending on necessities such as rent, gas, and utilities. All other unnecessary spending is cut-off which means no dining out, no clothes shopping, etc. It’s an intense saving tactic but effective.
10. Be Careful With Credit Cards
There’s a lot of debate on whether or not to give up credit cards when you’re heavily in debt. After all, a good chunk of consumer debt is due to overspending on high-interest cards in the first place.
You know yourself best, so if that means setting your credit cards aside, then so be it. Others have found ways to use credit cards with generous introductory APR periods to their advantage to pay off balances.
Whatever ends up being the right choice for you, just keep in mind that credit cards should only be used on purchases you can afford to pay for. If you’re charging an expense on your card that you don’t have the money for, you shouldn’t be buying it. It’s a hard truth but could help keep you from digging yourself further into debt.
11. Consider Consolidating Your Debt
If you’re facing a mountain of debt (vs a small to medium pile of debt) and need extra assistance, it may make sense to reach out for professional credit counseling services.
Thousands of people have used debt consolidation services to work their way out of debt and it may be a good option for you to explore. Before you reach out, though, make sure you know what debt consolidation is. The best companies are reputable and offer transparency in their pricing structure.
Let’s recap – here’s what to do when you’re drowning in debt:
1. Check your credit
2. Make a list of where your money is going
3. Cut out unnecessary spending immediately
4. Ditch subscriptions you may have forgotten about
5. Set a budget
6. Make a reward system
7. Contact your creditors
8. Pick up a side gig
9. Start saving money
10. Be careful with credit cards
11. Consider consolidating your debt