1. Know Your Numbers
The first step to getting out of debt is to know your debt. Make a list of every debt you owe, we know, that can be scary, but you have to face your debt head on. List the debt, the interest rate, the minimum monthly payment amount and your remaining balance. While the bottom line may seem the literal definition of overwhelming, the fact is you have to know what you owe in order to manage and improve it.
Making just the minimum monthly payment is a slow and expensive way to pay off debt. The more you pay, the quicker you can ditch the debt. This can be very hard to do, especially if paying the minimum is difficult right now. The best way to find the funds to do so is by making a budget and sticking to it. If you crunch the numbers, and there’s more going out than coming in, then you need to find areas in which you can reduce or eliminate spending (which can be tough but doable) and/or find ways to bring in more cash (which can be more difficult).
4. Pay Yourself First & Start Your Emergency Fund
It may be difficult to save while you are thinking about paying off debt. Setting up an emergency savings fund account for unforeseen expenses is an important step into paying off debt. That way when medical bills or other unexpected expenses pop up, you have a way to pay for them without having to take on new debt.
It can be a good start to discipline and managing money. Take even $20 or $50 per week and put it in an emergency fund. Try to save up to $500; then $1000. Then don't touch it, except for emergencies.
Here is a simple way to save $1040 over the course of one year or 52 weeks. Simply save $20 per week, or have it automatically transferred weekly into your savings account: $20 x 52 weeks (1 year) = $1040.
3. Consolidation Options
Consolidation can be done in a number of different ways. For example, if you have multiple credit cards, you may transfer all the balances to a single card with a lower interest rate. Another option is to take out a loan to pay off all your debt. It will, of course, depend on your unique situation, but in some cases loans may offer interest rates much lower than credit card rates, so you save in the long run. Just make sure you pay the loan payments and don't add new debt to your credit cards.
4. Pay Monthly Minimums - Then More Towards One Card or Loan
Always make your minimum monthly credit card payments so you can keep on top of your credit. Then choose one card, perhaps the one with the lowest balance and pay more towards that card. Do that until the first card is paid off. Then choose your next debt and do the same.
5. Avoid Debt Relapse
Once you have a plan to manage your existing debt, you want to do everything you can to avoid racking up more. Stick to making smart financial decisions, including online calculators and budgeting apps. Here is an article on how to avoid a debt relapse.
Debt is a part of life for most of us at some point. Take a look at what you owe, take advantage of financial tools and services available to help you pay it off, commit to finding your financial freedom! Then once you've paid off your debt, make sure you don't acquire new debt. You will enjoy the feeling of being debt-free!