Finances

How To Get Out of Debt Fast

How to get out of  debt quickly

The average American has about nearly $15,000 in consumer debt. Debt has taken a toll on nearly 80% of the American population and it seems that we all are fighting understand how to get out of debt quickly. No matter the reason you’re in debt the fact remains that in order to get out of debt quickly personal sacrifice is necessary. Sometimes drastic measures have to be taken to reach debt free status.  No matter how daunting the road seems if you take a positive approach to the road ahead and procure a plan, a debt free lifestyle is within your reach no matter your income. Do your best to not feel defeated and use the steps below to develop a plan of action to get out of debt fast. 

Determine out how much debt you owe

And how much you can realistically pay with your current income. A few years back I had some debt that I wanted to get rid of.  I knew that my current car was about to be on the fritz and I needed to reduce my debt to increase my credit score in order to buy a new car. I had a modest income, and I  chose not get a second job, so I took audit of my spending habits. I download all three of my free credit reports from annualcreditreport.com I created a spreadsheet and listed all of my debts  and totaled them to determine how much I owed. By doing that I was able to visually see my debt load daily which helped to imbed that number in my head and to track my progress. Also by listing my debt I was able to figure out how long it would take me to completely eradicate the debt. 

Create a budget

This should be a no brainer.  No one has successfully gotten out of debt fast without a budget. To create a budget you need to create a spreadsheet with a list of all of your expenses as well as your income. If you’re not tech savvy, keep it old school and use a notebook. Determine what can be cut out of expenses and what expenses are necessary. For instance, cable might have to go in favor of NetFlix ,Hulu or just a good old fashioned book. Your data plan may need to be reduced as well in favor of wifi at home.  Also, another major option that most people fail to downsize  is their cell phone plans. Cricket Wirleess, which is on the same network as AT&T  has a $25 unlimited text and talk plan, $30 cell phone plan (unlimited text and talk) with 2GB data , and also a $60 unlimited everything plan.  If you know that you go out every Friday for Happy Hour Budget for that as well. The trick to staying on budget is to realize that once the money allotted for a certain activity is gone, it’s gone. No dipping into debt reduction funds for happy hour. Sticking to your budget  is an act of major discipline and if you can stick to this you’ll be fine.

Cut out all unnecessary spending

Manicures, pedicures, cable, eating out, shopping, entertainment, travel, Starbucks, unnecessary Target trips, hair products, and any other expenses or vices that are not absolutely necessary should be avoided. These things should now be considered luxuries and avoided . Little purchases add up and can thwart you debt reduction goals.  Now, personally I don’t think, with the exception of cable, that you have to live a joyless life while decreasing debt. So  as a reward for meeting certain debt reduction milestones you should allow yourself small indulgences. A mani, pedi, meal at your favorite restaurant or Starbucks coffee are good options.  Make the reward nominal so that you won’t be tempted to fall back into your old spending ways. For instance, after you have paid off $5000 in debt then treat yourself to a $50 or less treat.  Don’t go and buy a pair of $900 Louboutin’s. That’s counterproductive behavior. Keep the milestone large and the rewards small. Also, don’t fall for the myth that you can’t socialize when trying to be debt free. You can still participate in happy hour, just eat the free chips and dip and order water and a lemon, for  Diy lemonade. Or host a pot luck at your place and have everyone bring a dish. Or better yet, add an entertainment stipend to your budget, as mentioned earlier, to make sure that you won’t suffer socially. 

Prioritize debts

My suggestion is that you tackle credit cards aggressively first. Only because they typically have the highest interest rates and you don’t want the interest to keep adding up. Then hit any other debts you have. Student loans typically are low interest and payment amounts are more negotiable so pay the minimum on those until the credit cards are paid off.  Then mortgages and other other debts i.e medical debts can be addressed aggressively after those bills are paid. Remember that all of your debt needs to be paid, so while prioritizing who gets paid the most, all creditors should be paid at least the minimum monthly balance due.

Assess your living situation.

While assessing your living situation may seem drastic, it may be the only option for some. If you can rent out a room in your own home as a source of income consider that.  If you have generous family members that will allow you to stay with them at a reduced fee then that is also a great option. Don’t be a freeloader though. Offer to pay something to anyone that you bunk with. If neither of those are viable options then if you are renting you should actively search for cheaper rent so that you can move into a more affordable place. When I was in the process of eliminating debt,  I moved to an apartment closer to my job to save on tolls, gas, and rent.  The money you save moving to a cheaper apartment should be budgeted towards your debt.  Be reasonable when searching for cheaper rent.. You may have to give up certain luxuries but that’s ok. The end game is debt eradication and that’s way more satisfying than living in a luxury apartment that you do not own. As a Realtor, I once had a client that told me that she and her friend created an aggressive two year debt reduction plan. They rented a one bedroom apartment.  One year one roommate lived rent free and the other  friend paid off all of their debt during that year. The next year they switched positions and the other was allowed to live rent free.  By doing this they were both able to pay off their debts within their year of rent free living. 

If you own a home then you have more options. You can rent a room or two to a family member, friend or  well qualified tenant for extra income. Or you could post your whole home or room on sites like airbnb.com or homeaway.com for extra income.  If you have a boatload of debt and you just want out and you have equity in your home, it may be worth it to look into selling your property. This, however,  is a very loaded option and should be mindfully considered. There are several things you may want to consider when selling your home. First, being the equity. If there is 20% or more equity. To determine how much equity you have in your home contact a licensed Realtor in your area.  They will be able to determine how much your home can sell for and you can determine your equity by subtracting what you owe, minus the closing costs, from the expected value of the home.  Please do not use popular automated sites for selling estimates. Local Realtors will typically  provide  market info to you for free. The second thing to consider is will it completely eradicate your debt? If so, then it’s a no brainer. Sell, sell, sell and do it immediately. Especially if your local market conditions are hot. The only time I would advise that you not sell your home is if the equity is under 20%. 

Change your mindset about money

I once heard a famous finance guru say that you won’t get out of debt until you’re mad at your debt. I agree, but I wanted to take it a step further. Get mad at your debt, then use that energy to create a debt eradication plan. Then get happy. Yes, happy. Happy about  your future of being debt free. Write down your “why” regarding  wanting to be debt free. Do you want to be debt free so that you can stay at home with your kids? Do you want to be debt free so that you can travel more? Whatever your rationale is write that down and keep it in a visible place. As a matter of fact put it on a few index cards, put one in your car on the dashboard  so that when you drive up to your local Chick Fil A you’ll be reminded of your goals. Then put a card in your wallet or purse, near your debit card so that when you’re about to spend unnecessarily you’ll get a quick reminder. Post it on your fridge, your bathroom mirror or anywhere you need a reminder. Also, if you find that you need extra motivation to get yourself in the debt free mood then go listen to a few success stories about people who’ve amassed and have gotten out of debt fast. His and Her money on YouTube has several successful debt reduction stories.

Generate more income

To most this will mean to getting a part time job. To others this means getting a side hustle. Either way generating more income is essential to getting out of debt fast. Truly, while  working  a second job may sound daunting it’s actually probably the easiest task of all in the debt  reduction process. Work from home jobs in this day and age are plentiful. They are mainly call center and or data entry jobs and don’t pay super well, but anything is more than nothing.  Also, you can take surveys at home or do micro tasks online if you need freedom in your schedule. I personally have done several surveys and micro tasks on Mturk.com and Prolific.com and have made nearly $1000 with very little effort.  There are also work from home companies that allow you to choose your own schedules as well (Appen, Leapforce,iSoftStone)If those options are not for you then capitalize on a talent. For instance I love to cook so I offer my services to friends and family and meal prep for them. This nets me about $150 a week for 2-3 hours of work.   My husband is really into fitness and boxing and he uses that skill set to his advantage by charging $25 an hour for personal training and boxing training. Your skill set may be different but whatever it is everyone has a marketable skill set that they can use to make money. There’s also companies like Uber,Lyft,Instacart and Shipt that allow you to make money and set your own schedule. The opportunity for extra income is limitless. Get creative!

Sell Things that you don’t need

Typically it’s best to sell your merchandise locally so that you can net a higher price. Craigslist, garage sales, and garage sale groups on FaceBook are great for things like exercise equipment, bicycles, electronics and furniture. For clothes, handbags and shoes I would suggest a local consignment shop or an app like Poshmark or Ebay. For books, your local Half Price Books is a great option. If you’re selling a textbook Chegg.com or Amazon are also awesome avenues for selling books. Keep in mind there are fees associated with selling online so weigh the costs before you make a decision about the route you want to take when selling your belongings.

And lastly, remember that discipline trumps motivation  when getting out of debt. While the road ahead may seem daunting, try not to be discouraged. Remember why you took this route and train yourself to be disciplined and stick to your plan. 

Tell me what are some things you’ve done to get out of debt? Tell me in the comments below.