How to Start Paying Off Debt for Real

Debt is a normal part of life. You rely on it to make big money moves, like buying a house or going to school. It can also help when things go unexpectedly wrong at home or on campus if you borrow an aptly timed personal loan or line of credit.

However, there is such a thing as too much debt.

Everyone has their own limits. What’s too much for one person may be manageable for someone else.  Your line in the sand depends on your income, lifestyle, and existing bills. 

You might be at your limit if you find it hard to budget for anything other than debt. Living paycheque to paycheque to pay back what you owe prevents you from saving money. If debt prevents you from planning for the future, keep reading. Here are some tips to help you pay down debt and take control of your budget. 

Choose a Strategy

Before this article gets into budgeting techniques, first let’s talk about debt payment strategies. Two main methods exist: the snowball and the avalanche methods. 

Regardless of which one you choose, each method starts with the same first step. You must cover the minimum payments on all your loans and credit lines. Beyond that, each method has its unique way of paying down debt.

1. Snowball Method

Order your debts by balance, looking at the account with the smallest balance. That’s the one you want to start paying off first. Fold any extra money you have in a month (above and beyond its minimum) to do so, while maintaining the minimums on everything else. Once you pay off this account, move on to the next lowest account. 

Given that it doesn’t account for interest, the snowball doesn’t save you any money. Its biggest benefit is what it can do for your motivation. Research shows people who try the snowball method are more likely to pay off all their debt. By focusing on the easiest account to pay off first, you can celebrate a quick win that inspires you to keep going. 

2. Avalanche Method 

The avalanche method takes a different approach to your debt payments. Rather than balance, it focuses your attention on interest. Reorder your debts by interest rate; the account with the highest interest rate is the one you will pay off first before moving through the line.

Testing shows the avalanche method saves you money in the long run. However, it can take some time before you see results, which can demotivate you. 

Downsize Your Budget

Now you know which account you want to focus on first, it’s time to drum up the money to go beyond its minimum. Start by cutting non-discretionary expenses from your usual spending. Things like subscription fees, takeout, surplus clothing and cosmetic shopping, and vacations are the easiest to reduce or eliminate. 

If you’re serious about your debt, you can also focus on your essentials. Downsizing what you spend on the essentials is harder, but still possible. Start by shopping around for a new phone carrier, trading in your phone for a cheaper model, and learning how to grocery shop on a budget.

Don’t Add to Your Debt

As you pay down your debt, don’t add to it. While this advice is simple in theory, life can throw you off course. If you need to make draws to cover an unexpected expense urgently, here are some tips to help you manage a line of credit. 

You might be able to reduce how often you turn to these accounts by saving every month. Hold back some of the money you plan on pushing towards debt for an emergency fund. It doesn’t have to be much. Even $15 a month builds over time. Eventually, they can help you call a plumber or repair your car on your own dime. 

Rethink Your Career

Juggling debt, savings, and everyday costs is tough, especially now. You could be doing everything right and still find it hard. If you already live on a shoestring budget, you might not be able to free up cash for extra payments. In this case, it’s time to look to the other side of your budget: your income. 

No matter how diligent you are with your budget, not earning enough is a major barrier to debt payments. This is a wake-up call. If your income makes it challenging to make ends meet, it might be time to reconsider your career. 

Compared to the other tips in this list, a career change isn’t as easy or quick to pull off. However, it could have the biggest impact on your debt-paying abilities. Look into what you would have to do to switch gears, kicking up networking and volunteering to make connections. 

Alternatively, you can start brushing up your skills to qualify for a promotion at work, or update your resume and apply for a new, better-paying position

Fold in Windfalls 

Tax refunds, birthday presents, and random jackpot prizes. Any time you earn a little surprise money, use it wisely. While it might be tempting to splurge on something fun, you can use it responsibly. Folding in windfalls accelerates your debt payment schedule. 

Consider Consolidation

Sometimes, debt consolidation may be the right answer. This process combines all your debt under a single loan, streamlining what you owe and when you owe it; instead of paying several bills throughout the month, you make just one payment to your consolidation service. 

In some cases, debt consolidation services offer a lower interest rate than some accounts. However, they don’t guarantee an ultra-low rate. There’s a chance this new loan applies a higher rate than half of your accounts. They may also apply additional fees that increase your monthly payments.

Think about these pros and cons carefully to ensure this is the right option for you.

Reintroduce Spending Slowly 

Eventually, all your hard work will pay off. Your debt will go from challenging to manageable to gone. By then, you will have a lot of extra cash on hand. 

Before you spend it all, give yourself time to live with this money. Think about what you really want. Beyond the new sound system or car, you should think about long-term financial investments like your emergency fund and retirement. Revisit your budget to balance all your goals.