How to Pay Off Your Debt: Tips for Success

 
 

Now that the glitter of the holidays and New Year’s has worn off, the reality of those holiday bills is setting in. We spoke with the experts to find out the best strategies for paying off your debt and starting fresh with healthy finances this year! Read their tips below:

Create a Budget

First things first, you need a budget. Tracking your money and knowing exactly how much is coming in and how much is going out, as well as where you’re spending all of your money, is so important to getting out of debt. Once you have a budget in place and know how much extra money you can throw at your debt each month, calculate how long it will take you to pay off your debt. You can then create a monthly debt-payoff plan. This should include how much you’re paying towards your debt each month and how quickly that enables you to pay off your debts in full. Once you have a plan, you can start taking action with confidence and looking forward to paying off the last of your debt.

Set Realistic Goals

Make your goals realistic. If you have $10,000 worth of credit card debt, chances are you won’t pay that off in a year – and that’s okay! Create mini goals as well, such as paying off $200 per month until the ultimate goal is reached. When you reach a mini goal, reward yourself with a minor purchase or treat. That might seem counterintuitive but it actually helps maintain your motivation.

Cut Variable Expenses by 10%

An easy trick that people can do to squeeze a little extra money out of their budget is something I call the 10% rule. Look for variable expenses in your budget, such as restaurants, entertainment, clothing, groceries, and pocket money. Cut each of these categories by 10% and direct the savings toward debt. For example, if you budget $200 for restaurants, cut it to $180 and use that $20 savings for debt reduction. This change will barely effect your lifestyle, but the savings over multiple categories can add up and help make good progress on debt elimination.

“Worst First” Approach

The most efficient way to pay down debt is with the “Worst First” approach, which means attacking the highest interest rate debts most aggressively. I have seen multiple sources say to go after the smallest debt first so that it is taken care of, then roll up to the next, then the next. This might FEEL good, but actually costs you more money in the long run.

Consider a Side Job

My #1 tip for anyone dealing with debt is to consider taking up a side gig in the sharing economy to supplement their income. The work is not only flexible but brings in a decent amount of money that can go towards clearing debts and other financial goals. Additionally, it’s super easy to get started. All it takes in some instances is just downloading an app or signing up for a service and you are set. Platforms like Uber, Airbnb, TaskRabbit and Instacart come to mind for getting started.

Seize the day and start paying down your debt now! Your future self will be so grateful to your current self for taking your finances seriously! If you are new to the idea of budgeting, try our free budget worksheet template to help you better determine your financial state.