If debt keeps you tossing and turning at night, you’re not alone. U.S. consumer debt, which includes mortgages, car loans, personal loans, and credit cards is up to $13.86 trillion, with the typical American carrying an average of $90,460 in debt.
Carrying that much consumer debt can feel not just overwhelming but uncontrollable, especially if you’re struggling to make minimum payments. But don’t give up yet: it might not be easy, but with a plan (and a whole lot of grit) you can pay off any debt, no matter the size. Here’s a seven-step plan to help you get rolling.
- Create an emergency fund.
- Reexamine your budget and trim expenses.
- Find a secondary income.
- Pick a debt payoff strategy.
- Pay more than the minimum.
- Get your spouse on board.
- Celebrate your progress.
1. Create an emergency fund.
Unexpected expenses may be one of the reasons you got into debt in the first place. So, before you start paying off debt, set money aside that you’ll only use for emergencies.
How much? Start by saving at least one month of expenses, including minimum payments on your debt. That way, if you or your spouse loses a job, you’ll have a safety net to stop you from going deeper into debt.
2. Reexamine your budget and trim expenses.
If your current budget got you into debt, it’s time to reexamine it and find out why. See where you’re overspending and make adjustments so you can pay off debt faster.
3. Find secondary income.
Once you create your budget, it’s time to strengthen your cash flow. Even if you can meet your monthly expenses and pay down debt on only one stream of income, a secondary source will help you pay down debt faster. Plus, with all the gigs available today, from ride sharing to delivering groceries, it’s never been easier to supplement your income.
If you’re having trouble finding a secondary source of income, or you want to see if you can make more doing what you’re already doing, we recommend using the free tools available at Thinkflow. It can help you find secondary sources of income and possibly higher-paying jobs near you.
4. Pick a debt payoff strategy.
If you’re like most borrowers, chances are you have debt in multiple places. Naturally, you may ask, which debt should you pay off first? While there are several debt payoff strategies out there—debt consolidation and balance transfer are two others—we’ll focus on the two most popular: the debt snowball and debt avalanche methods.
What’s the debt snowball?
When you pay debt in a debt snowball, you order your debts from smallest to largest and tackle the smallest debt first. The idea is that by paying your smallest debt before all others, you build momentum, which motivates you to keep going. By the time you face the bigger debts, which may have intimidated you in the beginning, you’ve created so much motivation—think a snowball near the bottom of a hill—you finish strong and debt-free.
Why use the debt snowball?
The debt snowball is ideal for people who are struggling to get started: by paying off small debts first, you take baby steps toward your goals. This method can also improve your credit score, as you’re eliminating accounts with outstanding balances.
What’s the debt avalanche?
The debt avalanche works a bit differently. With this method you order your debts by interest rate, paying off the highest interest rate first, followed by the next highest, and so on.
Unlike the debt snowball, which moves quickly at the beginning, the debt avalanche may move slowly, though the momentum will increase as you pay off more debt.
Why use the debt avalanche?
If you want to pay less in interest, use the debt avalanche. The idea is that by eliminating high-interest debt first, you’ll free up your income to tackle more debt later.
5. Pay more than the minimum.
Most people pay the minimum balance and call it a day.
But paying the minimum may help you avoid penalties, sure, but stopping at the minimum will only slow down your debt payoff, which over the long run can make you lose focus.
Remember: the faster you pay off debt, the less you pay in the end, as you’re not paying as much in interest. And to pay debt off faster, you need to go above the minimum.
6. Get your spouse on board.
Or your roommate. Or your friends. Or your parents. The point: find people who will support you and cheer you on. Trust us—it’s much easier (and less lonely) to hit milestones when you’re surrounded by people who want to see you achieve financial freedom.
Which brings us to…
7. Celebrate your progress.
You’re about to embark on a journey, one that could take many years to accomplish. So when you hit a milestone, like paying off a high-interest credit card or loan, give yourself a chance to celebrate.
Need Convenient Cash Fast?
We get it—life happens, and not everyone has the money to respond to all life’s emergencies. If you’re struggling to pay off debt and you need cash fast, Jora Credit can help. While we do encourage you to look closely at your finances before adding more debt, we’re here to support you if you need a loan.
Contact us today, and we’ll help you get started.