Getting Out of Debt

Getting Out of Debt

Time to talk about our least favorite four-letter word. You know the one, the one you never want to use around your spouse or friends… Debt.

Women, in particular, might want to focus on this financial problem, according to a number of recent studies.  One study found that women are more burdened by student loans than men.  While another study found that women are more likely to carry credit card balances, pay late fees, as well as pay higher credit card interest rates than men, regardless of their credit score. 

There are a couple things about dealing with your debt that make it pretty difficult to face. First, it’s highly personal. Second, if you have a lot of it, it seems impossible to know where to start.

Hopefully these tips will help you break it down into some easier, more digestible tactics, and empower you to face your debt head on.

Make a List

Dedicate one day to make a list of all your debts that includes the name of the creditor, your balance, the interest rate, and the minimum monthly payment. Remember to add in any other loans that you don’t get bills for—i.e. loans from family and friends.

You can either list your debts from smallest to largest balances, or by smallest to largest interest rates. The first way can allow for you to pay off your smallest debts more quickly, giving you some of that instant gratification of seeing your debts drop off (even if they’re small amounts), giving you the confidence to stick to your plan. The second way will save you money over the long run, allowing you to pay off bills with the highest interest rates first.

Make a Realistic Budget with Padding for Emergencies

The next step is making a realistic, yet tight budget, for yourself and sticking to it. Add up what your hard monthly costs are: mortgage payments, groceries, bills, gas or travel, and entertainment—then add in your minimum monthly repayments. If you can, overestimate on everything so you have some left over money at the end of the month that you can throw in your savings. Then—make a conscious decision to not borrow any more money until everything is paid off.

If you can afford to, put a comfortable amount into a savings account for an emergency fund. That way, you can stop your cycle of borrowing (or at least ease it) if you ever have an unforeseen emergency expense pop up.

Extra Money Goes Towards your Debt

Promotions, cash gifts, commission bonuses, etc. should all be seen as an added bonus to getting you out of your debt. It can be tempting, especially when you’re on a tight budget, not to spend that money on something you want. It’s important, however, to remember that the more you put towards decreasing your debt balance, the quicker you’ll be able to start spending your money on things you want again.

 

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