How to get out of debt in record time: A step-by-step guide

Maybe you were doing fine financially. Or, like millions of Americans, perhaps you were already living paycheck-to-paycheck.

Either way, the pandemic certainly didn’t help your financial situation.

While the country is slowly recovering, that can’t come fast enough for many people buried under a growing mountain of debt. And, as you probably already know, it’s tough to stay motivated when you’re constantly worrying about how you will make ends meet. 

Fear not: There is a way out.

Step 1: Take Stock of Your Debt

The first thing you need to do is take a deep breath and face the music. You can’t get out of debt if you don’t know how much you owe. So, grab a pen and paper or use a budgeting app and make a list of all your debts. Remember to include the creditor’s name, interest rate, and minimum payment for each debt. Once you’ve got a clear picture of your total debt load, you can start to figure out how to tackle it.

• Did you know?: The average American has about $38,000 in personal debt, excluding mortgages, according to NerdWallet. By facing your debt head-on and making a plan, you can finally take action to pay it off.

Step 2: Create a Budget

Budgeting may not be the most exciting thing in the world, but getting out of debt is essential, and you can only do that with a budget in place. Look at your monthly income and expenses and see where to cut back. Maybe you can ditch that gym membership you never use or cancel a subscription service you forgot you had — every little bit counts. Once you’ve freed up some cash, create a budget that allows you to live within your means and allocate as much money as possible towards paying off your debts.

• Did you know?: Consumers spend an average of $219 per month on subscriptions (think Netflix, Spotify, etc.), which comes out to more than $2,600 per year, according to recent survey by C + R Research. What’s troubling about that is the estimate of what consumers thought they were spending every month: $86, or a whopping $133 lower than the actual amount they were paying. Canceling these subscriptions can free up some cash to pay off your debts. Don’t underestimate the power of cutting back on unnecessary expenses!

Step 3: Negotiate with Creditors

This may sound scary, but negotiating with creditors can be a game-changer. Call them up and explain your situation. They may be willing to work with you to develop a payment plan that fits your budget. You can also ask for a lower interest rate, saving you thousands in the long run.

• Did you know?: According to recent Lending Tree study, 8 in 10 people who asked for a lower credit card APR successfully got one. Negotiating with creditors can be intimidating, but it can also be a game-changer when paying off debt, as you could save thousands of dollars in the long run.

Step 4: Prioritize Your Debts

Now it’s time to get serious. Two popular methods for prioritizing your debts are the debt avalanche method and the debt snowball method. The debt avalanche method involves tackling your debts in order of interest rate, starting with the debt with the highest interest rate and working your way down. The debt snowball method involves prioritizing your debts based on balance, starting with the smallest balance and working your way up. 

• Did you know?: The average American carries a credit card debt of $6,194, according to the most recent report from Experian; Florida is slightly higher at $6,460. Consider the debt avalanche or debt snowball methods to crawl your way out.

Step 5: Increase Your Income

If you’re struggling to make ends meet, it might be time to consider increasing your income. Easier said than done, right? This could mean finding a part-time job, selling items you no longer need, or finding ways to monetize a hobby or skill you have. Every little bit helps when it comes to paying off debt.

• Did you know?: Forty-five percent of Americans have a side hustle this year (2023), according to Zippia. The top side hustle? Rideshares. Don’t be afraid to try something new, as these days, every little bit of financial help you can get is worth it.

Step 6: Stay Motivated

Paying off debt is no walk in the park, but staying motivated and focused on your goals is essential. Celebrate your progress along the way (but don’t blow your budget doing so!). And surround yourself with people who support your goals.

• Did you know? A recent study by the Columbia Business School via Motley Fool found that participants with a peer group that held them accountable could save about twice as much as those who were trying to reach their financial goals by themselves. Even having a “savings texting buddy” to share their progress led to more significant savings than those who did this alone.

Getting out of debt can feel like you have to climb an impossibly high mountain – it can be hard to see the peak when you’re at the bottom. That’s why this process also takes a hefty amount of perseverance and dedication. If you’re looking for ideas for getting out of debt, connect with the Van Horn Law Group. After all, every journey – even the seemingly impossible ones – begins by taking the first step.