I Need Help Getting Out Of Debt!

You don’t have to be a mathematician to know that debt is a major problem in our society. In the United States, consumer debt now totals $2.8 billion. That averages out to $8,800 per person. What types of debt make up that $8,800 per person? 31% of that ($2,728) is revolving debt, typically credit card debt. The other 69% ($6,072) is primarily made up of auto loans and student loans. Did you know that from 1980 to 2011, debt has increased 61.3% faster than our incomes have increased? Yes, we have a problem. What steps can you personally take to resolve your debt problem?

Do Not Take On Any New Debt

Seems simple, right? If you have a problem with debt, step 1 is that you have to stop adding debt. Make the personal commitment to stop now. It is so easy for us to rationalize our purchases. “If I can just buy ______, then I won’t take out any more loans.” The reality is that’s how we get in trouble in the first place. We can tackle the argument of what debt could possibly be “ok” to take on in a later article, but if you have a problem with debt, then the buck has to stop here. The reality about debt is that we have to pay it all back at some point, so make the commitment to that you won’t buy anything more until you’ve saved up for it. If you don’t think you’re strong enough to make this commitment, tell a friend and ask them to keep you accountable. It’s worth it! Stay strong!

Get A “Quick Win”

Let’s face it, debt stinks! Paying down debt doesn’t sound like the sexiest way to spend your money, right? Have you ever heard someone say, “If feels like I’ve been paying off my credit card forever and never seem to be making any progress?” You need to find some “quick wins,” as it will likely make paying off your debt a lot more exciting and keep you committed to it.

A lot of times people ask, should I pay off the highest interest rate or the smallest balance? I feel like the best plan of action is to get some momentum. Yes, you can calculate the cheapest path to pay off your debt, but if you aren’t going to be emotionally invested in it and give up part way down the road, then you’ll end up wasting more money in the long run. Not to mention, Dave Ramsey says that if we had been paying attention to math, we wouldn’t be in debt in the first place.

For those that like achievements and checking things off a list, it's nice to be able to check that debt off your list and move on to the next one. At that point, you have an emotional “win” and you’re excited to get another. That’s always been my personal opinion, but in fact a recent study conducted by Northwestern University confirms that same belief.

Start The Snowball

If you have read articles on getting out of debt, chances are you have heard of the Snowball Method. If that isn’t familiar to you, I’ll explain. The method states that once you pay off a debt, take the monthly payment of the debt you just paid off and add it to the next debt you want to tackle. After that second debt is paid off, you take that total payment and add it to the third debt and so on and so on (hence, like a snowball) until you’re out of debt . Let’s look at an example.

Debt 1: $100/month

Debt 2: $150/month

Debt 2: $200/month

In this scenario, you are paying $450/month total in debt. For the sake of the example, let’s say you make these payments and end up paying off Debt 1 first. What you would do next is take the $100/mo. that you were paying on Debt 1 and add it on to your payment for Debt 2, so that you’re now paying $250/mo. on Debt 2. That extra $100/mo. helps you to pay off Debt 2 much faster. Once Debt 2 is paid off, you take the $250 and apply it to Debt 3. From there on, you pay the $250 you were paying off on Debt 2, plus the $200 you’re already paying on Debt 3 and now you have a $450 snowball to knock out Debt 3 much faster.  Does that make sense?

The beauty of the Snowball Method is that you never have to pay more each month than when you initially started. But, you have to stay disciplined and see that plan through all the way to the end. That is the approach that I used to pay off multiple school loans after I graduated from college. Once the first loan was paid off, I took what I had been paying on the first loan and applied it to the second loan. Yes, there were days that I wish I had that extra money to make other purchases, but I stayed disciplined and am happy to report that my school debt was paid off much faster than I ever would have imagined. It’s so rewarding to look back on the consistency and discipline and see that IT WORKS. If you’re discouraged, stick with it.

We weren’t made to live our lives dodging creditors and dealing with the added stress that debt brings. Yes, I know that things happen and sometimes those bad circumstances aren’t our choosing. However, we can make the decision to not let our debt continually weigh us down. We can get mad and get even! Tackle that debt with force and see it through to the end. When that debt is all paid off, throw yourself a party because you deserve to celebrate!

If you have a great story about paying off debt, please leave a comment below or contact me and let me know. I'd love to hear them!