6 Steps to Crushing Debt
You and debt are so over. You’ve just about had it with those endless piles of credit card bills, and those hideous numbers that never seem to get any lower. It’s time to kiss that debt goodbye!
Getting rid of high debt will take hard work, willpower and the determination to see it through until the end, but it is doable. Here, we’ve outlined six steps to help you start crushing debt today.
Step 1: Choose your debt-crushing method
There are two approaches toward getting rid of debt:
- The snowball method, popularized by financial guru Dave Ramsey, involves paying off your debt with the smallest balance first and then moving to the next-smallest, until all debts have been paid off.
- The avalanche method involves getting rid of the debt that has the highest interest rate first and then moving on to the debt with the second-highest rate until all debts have been paid off.
Each method has its advantages. The snowball method places a heavier emphasis on achieving results at a faster pace, which then motivates the debt-crusher to keep going. Meanwhile, the avalanche method focuses more on actual numbers and generally saving the borrower money in overall interest paid on their debts. There’s no one right approach, and you can choose whichever method appeals to you more. Make a list and set a goal for which debt you’d like to tackle first!
Step 2: Maximize your payments
If you only pay the minimum on your credit card bill each month, you’re only paying interest without making progress on the actual principal, thereby trapping yourself in a cycle of endless debt. Make your escape by maximizing your monthly payments. You can free up some cash each month by trimming your spending in one budget category—or consider a side hustle— and channel those extra funds toward the first debt on the list you created in Step 1. Don’t forget to continue making at least the minimum payments toward your other debts each month!
Step 3: Consider a debt consolidation loan
If you’re bogged down by several high-interest debts and you find it difficult to manage them all, you may want to consider consolidating your debts into one low-interest loan. A personal loan from Scott Credit Union can provide you with the funds you need to pay off your credit card bills and leave you with a single, low-interest payment to make each month. Or, you can transfer your credit card balances to a single credit card with a low-interest or no-interest introductory period. Be aware, though, that interest rates will increase when the introductory period ends.
Step 4: Build an emergency fund
As you work toward pulling yourself out of debt, it’s important to take preventative measures to ensure it won’t happen again. One of the best ways you can do this is by building an emergency fund. Ideally, this should hold enough funds to cover your living expenses for three to six months. Start small, squirrelling away whatever you can in a special savings account each month, and add the occasional windfall, like a work bonus or tax return, to beef up your fund.
Step 5: Reframe your money mindset
Sometimes, like when there’s a medical emergency or another unexpected and expensive life event, a consumer can get caught under a mountain of debt through no fault of their own. Very often, though, debt begins with a wrongful money mindset at play.
As you work on paying off your debts, take some time to determine what got you into this mess in the first place. Are you consistently spending above your means? Is there a way you can boost your salary or significantly cut down on expenses? Lifestyle changes won’t be easy, but living debt-free makes it all worthwhile.
Step 6: Put away the plastic
Credit cards are an important component of financial health and the gateway to large, low-interest loans. However, when you’re working to free yourself from debt, it’s best to keep your credit cards out of sight and out of mind. You can set up a fixed monthly bill to charge one or more of your cards to keep them active, but only do this if you know you will pay off the charge in full before it’s due. Learning to pay your way using only cash and debit cards will also force you to be a more mindful spender so that when you do start using your credit card again, you’ll be careful to spend only what you can pay off at the end of the month.
Kicking a pile of debt can take months, or even years, but there’s no life like a debt-free life. Best of luck on your journey toward financial freedom!
Your Turn: Have you kicked a significant amount of debt? Tell us how you did it in the comments.