To be completely honest, it snuck up on me. My credit card debt, that is. I had always been frugal and had always paid off my full credit card balance every month. But about two years ago I decided to switch careers, which meant giving up my stable income and striking out on my own.
In the months that followed, my credit card balance quietly began to rise, as I paid for living expenses with my credit card — fully intending to pay it off at the end of the month but without enough income to do so.
I must admit, I didn’t even notice the balance growing, at least for awhile. I was too preoccupied with trying to get my new career trajectory off on the right foot. However, I eventually took a long, hard, look at my credit card statement and was not happy with what I saw. I was more than $3,000 in debt. So how did I pay it off? Below, I’ll share some of the lessons that helped me get back to being debt free.
1. Time for Some “Real Talk” with Yourself
If you have debt right now, your first step must be to sit down and find out exactly what your financial situation is. It might be painful, but you have to look at those credit statements, student loan statements, and banks statements and add up the numbers. After all, you can’t solve the problem if you don’t first understand it.
You’ll also need to closely examine your spending and decide how you might change your income/expenses in order to increase your monthly debt payments. When I had my own “real talk” with myself I uncovered some spending habits that needed to change. First I had to write up a full adult-style budget spreadsheet, which I had not previously done. And then I had to make some hard decisions. I decided to give up eating meals at restaurants until I was debt free (except for a few rare exceptions). And I stopped paying for cable television or attending any paid entertainment events like concerts or movies.
To get out of debt, you’ll need to do the same. Track your spending closely and be realistic about how much you can afford to spend. Vow to cut out any unnecessary spending and hold yourself to that. Or, if your budget is already squeezed thin, then figure out how to make extra money.
2. You’ve Gotta Have a Plan
Since we’re being honest with ourselves, we need to acknowledge that paying off debt is hard. Like any other difficult goal — building a skyscraper, winning a marathon, or starting a business — you need a plan in order to be successful. But what does a get-out-of-debt plan look like?
It needs to start with paying off the highest-interest debt first. That is the method which will get you out of debt the fastest and save you the most money in the long run (this type of plan is often called the “Debt Avalanche”). In order to set up your own debt avalanche, arrange your debts from highest to lowest interest rate and then begin to pay them off in order.
You’ll need to pay the minimum payments on each of your debts, of course, with the extra going toward the target account — which is why your reduced spending and/or increased income are the key to making larger payments to knock out each debt one at a time.
3. Look for Alternative Paths to Debt Freedom
Some people don’t realize that they have options when it comes to dealing with debt. And in some cases, those options can be the difference between success and failure. Depending on whether you have credit card debt, student loan debt, or some other type of debt, you’ll need to figure out if there are any programs or alternative solutions to help you pay off your debt.
If you have a good credit score, then it might make sense to use a balance transfer offer (with a 0% introductory rate) in order to give yourself a head start on paying off your balance interest-free. Or you might look into getting a consolidation loan, such as a peer-to-peer loan or a loan from your local credit union, with a lower interest rate than your current debt.
For student loans, there are programs like Income-Based Repayment, which caps your monthly payments at 15% of your income (for those who need extra breathing room) and Public Service Loan Forgiveness, a government program that forgives all loans after 10 years (for those who qualify).
4. Find Support from Friends and Family
It might surprise you, but your friends and family can be your biggest allies in your fight against debt. There’s a world of difference between facing this challenge alone and doing so with the full backing of the people you care most about. If you have your loved ones on your side, they’ll be able to help you during the times when you want to give up — and trust me, those times will come. And when you feel you’re making progress, they’ll encourage you. (Best of both worlds!)
Hopefully these lessons from my own experience will help you tackle your own get-out-of-debt journey and succeed in reaching your financial goals. If you have any questions about my story or your own situation, feel free to leave a comment below.
Benjamin Feldman writes about debt, budgeting, and other personal finance topics for ReadyForZero, a startup company that is building tools to help all kinds of Americans get out of debt. You can read more of his work at the ReadyForZero blog.