02 Mar How to Get Debt Under Control Fast
The pile of bills has caused a reckoning. You know you need to get debt under control fast.
Debt is a serious problem for Americans, and it is getting worse.
According to Experian’s 2019 Consumer Debt Study, “Overall, consumer debt in the U.S. has grown 19% since 2009 to its current record high of $14.1 trillion […]. And as debt in aggregate has grown, so have the totals in nearly every debt category—with some, such as student loans, more than doubling in that time.”
Here are some of Experian’s findings to give you a better idea:
- Mortgage debt is at an all-time high of $9.6 trillion.
- Auto loan debt is at a record high of $1.3 trillion.
- Student loan debt is at a record high of $1.4 trillion.
- Consumer credit card debt is at a record high of $829 billion.
- Personal loan debt totals $305 billion.
- Retail credit card debt is at a record high of $90 billion.
The Ascent breaks it down even further. The average (mean) household debt in 2020 is around $145,000, including mortgages, loans, and credit cards.
And the average revolving credit card debt for 2020 is $6,271.
Keep in mind that this number is an average, which means many people have significantly more revolving credit card debt.
Whether you fall above or below any of these debt averages, it is important to get debt under control fast.
Debt is a prison. If you don’t get debt under control, it will bury you.
You will not experience financial freedom until you pay off debt.
The good news, is people claw their way out of debt every single day, and you can, too.
Here are 12 ways to get debt under control fast in 2021.
#1 Know How Much You Make and How Much You Need Each Month
Before you dive into paying off debt, you need to take an honest look at how much money you make and how much money you need each month.
Make an itemized list of all of your monthly expenses and bills.
Then, do the math.
Ideally, you should be bringing in enough money every month to cover all your expenses.
If you discover you are spending more than you are bringing in, this explains how your debt has gotten out of control.
Now, go back to your itemized list of monthly expenses and bills, and highlight the main expenses (aka the things you need to survive such as rent/mortgage, electricity, water, groceries).
You want to have enough money left over after you pay for these main expenses each month to pay off debt.
#2 Figure Out Where You Are Debt-Wise
Next, you need to have a clear understanding of where you are debt-wise.
One thing to consider is your debt-to-income ratio.
To figure out this number, you divide all your monthly debt payments by your gross monthly income.
For example, let’s say your monthly debt is $2000 and your gross monthly income is $6000. That means your debt-to-income ratio is 33%.
According to the Consumer Financial Protection Bureau, “Evidence from studies of mortgage loans suggest that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments.”
This debt-to-income ratio is how lenders decide whom to lend money to. Generally, 43% is the highest amount lenders will allow borrowers to go.
With that being said, if you are close to 43% or over, you need to get debt under control.
(Then again, no debt is the best debt.)
Now that the math lesson is over, let’s look at your debt.
Just as you did by itemizing your expenses, you need to make a list of all your debt (student loans, car loans, credit cards, etc.).
Figure out how much you still owe on each loan, as well as the interest rates for each loan.
#3 Use a Debt Repayment Calculator
Another way to have a better idea about your debt and how you can get debt under control fast is to use a debt repayment calculator.
A debt repayment calculator will show you how long it will take to pay off each debt, which will help you set realistic goals.
Credit Karma’s debt repayment calculator lets you see both how long it will take based on the expected monthly payment, as well as the desired payoff time frame.
You may also want to check out a debt relief calculator, which will show you how much your monthly payment will be with a consolidated loan and how long it will take to pay it off.
#4 Cut Unnecessary Expenses
Now that you’ve taken a good hard look at your debt situation, it’s time to get to work.
Start by cutting any unnecessary expenses.
Remember your list of main expenses? Well, if you are spending money on things that don’t appear on this list of essentials, such as a daily fancy coffee, it’s time to say goodbye to your favorite barista.
Yes, it’s hard, but you can take all that money you save from unnecessary spending and apply it to debt.
You’ll be amazed at how this one step can help you get debt under control fast.
[Related Read: The #1 Thing That Prevents People from Reaching Financial Goals]
#5 Create a Debt-Friendly Budget
A standard budget denotes how much you should spend monthly in each category (housing, food, gas, etc.).
However, since you plan to get debt under control in 2021, you should use everything you found out in the previous steps to create a debt-friendly budget.
Add debt payoff as a category in your budget. Make it a standard for how you budget this year.
#6 Stop the Debt Cycle
It may be common sense, but it is worth repeating. When you are trying to get debt under control, do not take on more debt.
Stop using your credit card and break the cycle.
#7 Follow the Snowball Method
Beyond the basics of budgeting and cutting expenses, you need to figure out your approach to get debt under control.
One popular approach is the snowball method.
With this approach, you take every bit of extra money saved and use it to pay off the loan with the lowest balance first.
The idea is that paying off your smallest debt first will cause a snowball effect.
You’ll enjoy the win and have the confidence and momentum to tackle the next smallest debt and so on.
#8 Get a Lower Interest Rate
Always try to get the lowest possible interest rate.
The lower your interest rate, the sooner you can get debt under control.
Start by calling your credit card company and simply ask for a lower rate.
One study by CreditCards.com found that 69% of customers who called and asked for a lower rate received one.
Additionally, it is worth it to look into using the Credit Land Balance Transfer Calculator to see if you can transfer some debt to a lower rate card or a 0% card.
#9 Look for Ways to Consolidate Debt
Paying off debt can feel a lot harder than it is when you are staring down multiple loans with different interest rates and time frames.
If this feels familiar, consider consolidating your debt.
When you do so, it will take all your loans and make it so you have one payment with a lower interest rate.
One option is to take out a personal loan to consolidate your debt.
[Related Read: Is Debt Consolidation a Good Idea?]
#10 Use Stimulus Money to Pay Off Debt
Treat your incoming stimulus money and tax refund as bonuses.
When you try to get debt under control, any bonus money you receive should go toward debt relief.
This “extra” money will go a long way toward helping you get out of debt fast.
[Related Read: 3 Ways to Use Stimulus Money and Not Blow It]
#11 Start a Side Hustle
When you did the early math, you may have found that you are living beyond your means.
In this case, you need to make enough money to cover your expenses, as well as enough to go toward paying down debt.
The good news is, there has never been a better time to start a side hustle, such as blogging, food delivery, and renting space.
Use any money you make from your side hustle to get debt under control.
[Related Read: How to Start a Blog for Under $100]
#12 Commit to 12 Months
Lastly, commit to your debt payoff goal for at least 12 months.
These financial changes will reshape your spending habits for the better.
Plus, it will snowball quickly. If you use these tips, you will be amazed at how fast your debt disappears.
[Related Read: How to Set Financial Goals for 2021 and Stick with Them]
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