8 Tips to Getting Out of Debt Fast
Getting out of debt can be pretty daunting and overwhelming. With credit everywhere, getting into debt is easy; getting out of debt, on the other hand, is a drag.
According to debt.org, consumer debt was approaching $14 trillion after the second quarter of 2019. It was the 20th consecutive quarter for an increase.
Debt is the little thief that stays robbing your current peace of mind and your future self. We often underestimate the mental energy and work it takes to get out of debt.
If you dream of becoming wealthy, getting out of debt should be a top priority.
Here’s one thing you didn’t know about yourself: Deep deep deep down, you’re actually a debt ninja. By reading this article, you ready to activate your debt slaying skills.
Let’s get right into actionable steps you can take to crush your debt today!
8 Tips To Getting Out of Debt Fast!
1. Stop using your credit cards:
I’m pro credit cards. Matter of fact, I’m so pro credit cards I believe every 18 years old with a part-time job should have at least one credit card with a $500 minimum balance so you can begin to build credit early.
However, if you’re drowning in credit card debt, you’ll need to stop using your credit card.
There’s no point in following the other steps below if you’re still actively spending.
Some money experts advise you to cut off your cards or never use your credit card again; I don’t believe in that but you do need to put your cards away temporarily so you can attack the problem.
My approach is to use your credit card wisely.
Credit cards come with some benefits like cashback, protection on purchases, points that can be redeemed for cash, or put towards other expenses and the ability to dispute charges.
Closing out your credit cards especially if you’ve had them for a long time reduces the length of your credit which makes up 15% of how your credit score is calculated. The effect of this action on your actual credit score depends on what your credit score is right now.
The length of your credit is the one factor you cannot “fix”. You’ll have to wait it out. Let’s stick with a temporary solution for now – freeze your credit card someplace safe.
2. Plan – Create a strategy to pay down your loans:
There are several methods out there to help you pay off your loans. Pay off the loans with the:
- Highest monthly payment and work your way down.
- Lowest balance because the joy of paying off a small loan will motivate you to continue.
- Highest interest rate so you can save more money.
It doesn’t really matter what method you choose as long as you start moving and don’t stop. Choose any method that works for you.
Regardless of what you do, you need to confront all your debts by listing all of them in one place.
Clutter is dangerous; seeing and sorting your debt in writing will bring you the clarity you need to select a strategy.
3. Build your resolve to say no – to yourself
In a world of FOMO’S, YOLO’s, and perfectly filtered photos, saying no can be difficult.
You have Instagram, and Facebook to constantly remind you of all the things you could be possibly missing out on.
However, if you find yourself constantly beginning every purchase with “I deserve it”, you haven’t learned to say no to yourself. You’re going through your financial life with a serious sense of entitlement.
When you understand that the things you’re saying no are temporary and there’s something greater awaiting you on the other side of “No”, the easier you’ll find yourself adjusting.
Ask yourself: “Self, what’s valuable to me”? “What would give me happiness in the long term”?
This is why creating financial goals are incredibly helpful. Setting your financial goals and including a “why” will serve as a strong motivator in reducing mindless spending.
4. Consolidate Your Debt
If you’re in credit card debt, consider consolidating your debt into a personal loan.
You’d be moving from a revolving loan to an installment loan which could boost your credit score.
Consolidation loans usually come in the form of a personal loan. People typically get a debt consolidation loan to manage multiple debts usually from credit cards.
But here is something to be aware of: When giving you a consolidation loan to pay off credit card debt, some lenders request that you close out the credit cards that got you into trouble in the first place.
This removes the risk of you falling into the trap of digging yourself back into the financial hole. However, closing out your old credit cards could impact your credit score negatively.
It reduces your credit length which makes up 15% of how your credit score is calculated.
For instance: If you had 3 credit cards: Credit Card A – opened 8 years ago, Credit Card B – opened 4 years ago, Credit Card C – opened 3 years ago.
Your credit length is 5 years (8+4+3=15/3).
If you closed out Credit Card A, your new credit limit is: B opened 4 years ago + C opened 3 years ago= 3.5 years (4+3=7/2). There is no “fixing” your credit length history; only time can fix it.
This leaves you in a sort of catch 22 – keeping your credit cards and struggling with your debts OR closing your credit cards and having one loan.
Sadly, you have to decide what’s more important as long as you don’t make debt consolidation a habit.
5. Negotiate your debt:
Getting out of debt requires patience and negotiating skills. The worst thing you can do is ignore your bills or debt because you think it will go away or it will just work itself out.
It doesn’t work that way.
Open the lines of communication by contacting your lender and discussing your options. If they refuse to help you for whatever reasons, shop around and see what the competition has to offer.
You might be able to get a promotion rate with another lender who is trying to attract new customers.
6. Spend less than you earn
I’m sure you’ve heard the phrase; “spend less than you earn” or “live within your means” before. Somehow, it is easier said than done. Most people are trapped in debt simply because they’re living above their means.
If you earn an annual gross income of $100,000 and your net income is $80,000, your lifestyle should be designed around your $80,000 net income. Not a penny more.
Revise your spending and adjust to expenses to your income.
You can ball on a budget by finding more affordable alternatives to an expense category.
Depending on how deep in debt you are and how quickly you want to reach your financial goals, you can ease yourself into giving up the expense altogether by taking a 90 day fast to see how your budget does. Which brings me to the next point.
7. Save (some more):
Transfer any monies saved from cutting back or cutting off an expense into your savings account.
Saving and spending are like 2 sides of a coin. If you’re not saving, you’re spending. Which account category in your budget suffers the most when you spend more? If you guessed your savings account, you’re correct!
The more debt you have (I’ve categorized debt as spending), the harder it is to save. The harder it is to save, the less likely it is that you’ll be able to invest. Saving is the foundation of wealth building.
Saving + Investment = Wealth building.
8. Increase your income:
You’ve created and analyzed your budget.
You’ve determined that the issue really isn’t your expenses because you have an income shortage, it’s time to create another source of income. You could get another job, pick up more shifts at your current work or put a price tag on your skills.
Understand this one thing though.
Even if you increase your income without tackling your spending problem, you will only increase your expenses once more money starts coming in. Mo’ money, mo’ problems as they say.
Finally, getting out of debt is a journey. However, with a little planning, consistency, and patience you absolutely can!.