Pulling yourself out of debt is always an uphill battle. However, with the right tools and mindset, you can start chipping away and eventually free yourself of debt. When you first set out to tackle your debt, consider four factors:
- Your debt strategy
- Downgrading opportunities
- Money-making opportunities
- Other ways to save
With regard to your debt strategy, it’s important that you create a plan of attack for the debt that you’ve accrued. In other words, is your debt made up of credit card debt and student loans? Which debt has the highest interest rate? It’s costing you more money on a relative basis to keep the debt with the larger interest rate around, so it’s best to try and eliminate or reduce it first. An alternative and often preferred way to attack debt is sometimes commonly referred to as the “snowball method” in which you pay off the smallest debt amount first and then the next smallest and so on. Regardless of which method you choose, consider making multiple payments a month whenever you find a spare $20, $40 or $100 in your bank account. You don’t have to wait until you have a huge payment to make; it’s a good confidence booster to know that you’re doing a little bit here and there to reduce your debt.
Now that you have a plan of attack, it’s time to find the funds! The easiest place to start is with existing recurring bills, such as your cell phone payment and cable bill. Is there an opportunity to downgrade that won’t affect you too dramatically? Recurring bills add up over time, and if you can forgo cable for online viewing or an unlimited cell phone data plan for limited data usage, there’s a good chance you can save a significant amount of money. Another good downgrading opportunity may exist with your automobile. Car payments, insurance, fuel, maintenance and parking costs add up and sometimes make car ownership more expensive than alternative forms of transportation. Here’s an interesting blog post about the economics of car ownership versus using a cab service instead.
While your job or family obligations may not allow it, finding ways to bring in more money is always a good thing. Maybe it’s a second job or volunteering for overtime at work. Some people have started small businesses on the side, organized yard sales or sold unwanted items on sites like as eBay. Every little moneymaking endeavor can help lower debt.
There are plenty of other ways to save, so it’s time to get thrifty and creative. Consider preparing more meals at home, drawing up a budget or trying to use cash more often. People who pay with cash often spend less because cash forces you to physically part with money, which can help you make the decision not to spend.
Lastly, if you find yourself drowning in debt and don’t know what to do, bankruptcy may be an option. If your debt is too high, you should probably file for bankruptcy. Contact us at McFarlin LLP if this is the case, and we’ll help you make sense of your options.