When you are in a hole, it can seem that you will never, ever get out of debt. It is possible however. The first thing to remember is that it takes time. Without some unexpected financial boon, or an Ocean’s movie worth heist, it is going to take significant time and effort to get out of debt.
Even if you are willing to put in the time and effort however, it can be overwhelming to try to figure out where to start.
Despite the time and effort required, it isn’t actually difficult however. Just take it one step at a time.
Stop Spending
It sounds so simple, and maybe even trite. Duh right? Stop spending. Really though, put away the credit cards. Do not open another line of credit. Take out no more loans. If you are squeamish about cutting up the cards, freeze them, in ice.
This makes it harder to just grab the card and use it, but if there is an emergency and you feel you absolutely need it, you have access.
You just have to bust out the hairdryer and start defrosting. Think about if you really need it while you are blasting that ice.
Related: 10 Tips To Trick Yourself Into Saving: And What to Do with All that Extra Money
Evaluate Spending and Create a Budget
The next hack is to track spending and income for at least 3 months. This will help you get a grasp on where your money is going.
Find where you can cut spending. Is there an expense you can live without? Can you eat out less and cook more? Can you save on groceries or utilities? Do you pick up a new bag or top every month? If so, consider cutting back to every other month.
Cut out all unnecessary expenses, and don’t worry. It isn’t forever. It is only for a season while you are getting out of debt.
Related: How to Create a Budget Template in Excel
Snowball!
This is the big hack that will get you really going. First, put your monthly debt payments in order from least balance to greatest balance. Then, throw any extra money you found when you budgeted into that debt.
The idea is that you pay off that lowest balance as quickly as possible. This will do two things. First, you will see a dent in the debt and be motivated to keep going.
Second, you can take the same amount you were paying on that lowest balance and add it to the next one on the list.
For example, say your lowest balance debt is $300. Perhaps your minimum monthly payment is $20 per month, and you found $10 worth of expenses you could cut from your budget. Now you pay $30 per month on that lowest balance debt and make the minimums on everything else until you pay off the entire $300.
After that, you take the $30 payment you were making on that first debt on the list and add it to the minimum payment you are paying on the second debt on the list.
If it is $40, then you now pay $70. Once paid off, apply that entire $70 to the next debt on the list, and so on.
This is called a debt snowball and it is a very effective way to get out of debt.
Related: What is the Snowball Method To Paying Off Debt?
Find Extra Money
If you can’t find anything extra in the budget, or you just want your debt snowball to roll faster, look for ways to bring in more income.
One time gigs like yard sales or selling items online make a huge difference. A regularly paying side job such as delivering pizzas at night works even faster. The more money you can throw at the debt snowball the faster you will get out of debt.
Sinking funds
Set up sinking funds for expenses that do not occur every month but you know they are coming. This will keep you from using the credit card when these things occur.
Sinking funds work well for car repair and maintenance, home maintenance, and insurances that are paid quarterly or yearly.
If you do not know exactly how much these will be, estimate what you spend yearly on these items and divide by 12. Then set aside that amount of money each month.
When the time comes for an oil change or to have your HVAC system cleaned, you will have the money ready and not have to use debt to fund it.
Getting out of debt is definitely not easy, but it is can be done with discipline, dedication, and time. These hacks should give you a great start.