How to Finally Get Out of Debt
Getting out of debt is key to financial freedom. Being debt free gives you great financial flexibility. Paying off those debts, however, can be a struggle. Here we provide a comprehensive guide on how to get out of debt for good.
Along with losing weight, getting out of debt is probably the most popular goal in the United States. It’s almost always one of the top three New Year’s resolutions made each year. In fact, 42% of people vow to make better money choices. With the average American’s credit card debt once again on the rise, debt freedom is surely on many of our minds.
This goal, though — like so many others — tends to be forgotten within weeks of New Year’s Day. We get overwhelmed with managing a bare bones budget. We have to field unexpected expenses. Or we simply lose motivation when it seems like there’s no way out.
It’s time to stop the cycle. If you have resolved to get out of debt this year — whether it was for New Year’s or because you simply got fed up on a random Tuesday– here is how to finally meet that challenge, once and for all. To help, here are some ideas for not losing sight of the goal.
Financial Freedom > Zero Debt
At worst, debt is slavery. At best, it’s willful indentured servitude.
Say your family takes home $2,500 per month from your job after taxes. Now imagine your credit cards, loans, and rent/mortgage total $2,000 each month. This means that you work only one-fifth of your hours for yourself.
The remaining four-fifths of your time at your job is exclusively for your creditors. You might as well just hand your paycheck over or work off your debt directly for the credit card companies. Depressing, right?
Unlike slavery, though, you are free to leave this arrangement (your job) at any time. You just need to simply quit and look for another job with a pay increase. However, that is not always a simple or practical solution.
Learn More: My Two Best Financial Decisions: Leaving My Jobs
If it motivates you, think about what you would do with your freedom from debt. Without having to pay credit card companies, you would have the freedom to choose where your take-home pay goes. Then, use those dreams to fuel your motivation. For instance, if you want to save up for a vacation, place pictures of your favorite getaway spot around your house.
Replace Bad Habits
Excessive shopping can be a habit. Many compulsive shoppers find shopping helps them deal with difficult emotions like anger, frustration, and stress. The excitement of shopping helps to temporarily improve a person’s mood.
But you can replace this habit with healthier alternatives.
If starting a shopping trip helps you deal with difficult emotions, replace shopping with jogging, running, or another physical activity.
While the act of spending money improves the mood of habitual shoppers, physical activity improves anyone’s mood. This is due to endorphins — natural, mood-altering chemicals the body releases in both situations.
And what about the bad habit of wasting time watching television? This could be costing you actual money if you’re paying a fortune for cable. But you could also be missing major opportunities to make money. Instead of watching TV, spend time working on a side hustle or listening to podcasts to further your career (and make more money).
It may sound crazy, but just try to find a different habit that better serves your goals.
Make Getting Out of Debt Fun
The concept of “fun” is subjective. What one person finds fun, another might find mundane.
For example: when I was in debt, I liked watching the colorful monthly reporting graphs in Microsoft Money get close to crossing the x-axis of $0 net worth. I fully understand that might not motivate everyone the same way.
Related: How and Why to Track Your Net Worth
Rewards can be great motivators, too — just make sure they aren’t big rewards that will impact your finances negatively. Paying off a student loan and then blowing $200 on a steak and lobster dinner, for example, isn’t very smart.
Do something small, yet still enjoyable. You could treat yourself to a movie night every time you pay off a credit card, or plan that weekend hike that you’ve been meaning to do.
Celebrate at every possible milestone to keep up your motivation, but choose reasonable rewards.
Visualize Your Debt Reduction
Losing weight is easy to visualize. Improving finances? Not quite so easy.
I’ve seen videos posted online involving time-lapse photography to illustrate weight loss over time. The person takes a photograph each week in the same location and same position. When the photographs are laid side by side in a video, the change is apparent.
You may not realize it, but you can do the same with your debt.
Here are a few visualization tips:
- When you pay off a credit card, cut it up using a shredder. Save the plastic confetti in a bag. Watch it expand as you blow through card after card.
- Look at your credit card statements before you go to sleep each night. Your bad dreams will subside when your statements are small enough that they don’t cause anxiety.
- Here is an extreme option, for those who REALLY need a motivator: If you’ve paid off 20% of your mortgage, paint 80% of your house in a color you don’t like. Once a year, determine how much more you’ve paid off, and paint the corresponding amount in a color you do like. You’ll be encouraged to pay off your mortgage in full just so you can live in a house painted the way you prefer.
Learn More: Should You Ever Cancel a Credit Card?
Need some other ways to boost your motivation? Try these tips:
Do something positive every day.
The key to making a resolution stick is to keep it in front of you every day. If you can do it without additional fees, make a small payment on your loan or credit card every day before you go to work. Look at your net worth in Mint if that reminds you of your goal. Work an extra hour if it means you’ll get more money for paying off your debt.
Recruit your family and friends.
Having a support system is vital, but many people don’t want to let people know about their financial troubles. It’s important to have at least one person you trust to talk to about financial issues. It helps to share goals like this because goals often don’t seem real until you speak them aloud to someone. Plus, you can add some accountability just by telling someone about your goals
Consider your financial options.
To truly get started, you need to make some financial decisions. It is true that anything you do is better than nothing, but you need to have a plan. First, can you consolidate your debt onto one low-rate card? Call your credit card issuers and ask. Do you qualify for a loan through a peer-to-peer network? If you have a good credit score, you might find favorable loan terms.
Decide how fast you want to get out of debt and how much you want to pay. If you want to pay the least and succeed the fastest, you’ll want to examine the Debt Avalanche method. If you believe that a small success earlier on the path is important to keep you motivated, check out the Debt Snowball. Research your options and give it thorough thought. And if you aren’t sure which approach to take, check out this debt snowball vs debt avalanche calculator.
What tips do you have for keeping a resolution to get out of debt?