Stop Drowning In Debt With These 9 Effective Strategies

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Hey there! Are you stuck in debt and feel like there’s no way out? So many people have high levels of debt. This can range from credit cards to personal loans and auto loans to mortgages.

While some debt is okay (a mortgage, for example), other types of debt can seriously hurt your financial profile. To get out of debt and stay there, you have to figure out what’s getting you into debt in the first place. In this post, I go over how to get out of and how to stay out of debt.

1. Examine Why You’re In Debt

The first thing you have to do when you’re in debt is to figure out what led you to be in debt in the first place. Sometimes, debt is necessary, and we have to use it to our advantage.

An example of this necessary debt is taking out student loans to go to college to get a high paying job that requires a degree. This would be an instance where you going into debt was not something out of carelessness, but instead, out of the desire to pursue your career of choice.

Another form of debt that you might have taken on for reasons to improve your life is buying your first home. Most people can’t afford a home outright, so they take on a 15- or 30-year mortgage. This type of debt is necessary for most people, even if they pay it off sooner than later.

The type of debt that gets us into trouble is from living a lifestyle that our income doesn’t support. This leads to credit card debt and a spiral of never being to keep up with our spending. This is the worst kind of debt.

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Let’s talk about how to avoid getting into credit card debt in the first place.

2. Stay Debt Free by Cutting Back on Spending

In order to be debt-free, you’ll have to cut down on spending. We are fed advertisements on TV, the internet, billboards, and pretty much everywhere we go from the time we are children. We are told that we need to have things and that we should spend our money to get designer clothes, flashy cars, and go on expensive vacations.

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This is consumerism at its finest, and while there is nothing wrong with consumerism, if you want to save money and get out of debt faster, you need to cut back on consumption. Once you’ve cut back on your consumption and paid your debts, you’ll need to continue to spend less to stay out of debt.

To stop consuming so much, consider this:

3. Sleep On It Before You Purchase

If you have the impulse to buy something, don’t. Sleep on your impulse. When you wake up the next morning, if you still want to buy it, ask yourself, “Will I need this purchase six months from now?”

Chances are, you don’t. Now, instead of leaving that money as cash-on-hand, put what you would have spent on that impulse buy into a high-interest savings account and save it for the future.

Related Post: Maximize Your Savings With This Savings Account Guide

Now you have extra money that you didn’t have before, and you’re smartly saving the money instead of spending it on the next impulse purchase.

You will be amazed at how much money you have at the end of the year when you employ this strategy.

4. Only Use Credit Cards When You Have Cash Available

One of the best ways to avoid sinking into credit card debt is simply only to use your credit card when you have cash in your bank account to pay it off when your credit card statement arrives. For example, if you are using your credit card to buy $100 worth of groceries, then you would have to ensure that you have $100 in your bank account before you swipe.

Why do this? Aside from preventing yourself from overspending by not using your card unless you have money to pay it, you’re also able to use your credit card to earn rewards. Reward credit cards have perks such as cash back, gift cards, discounts, and more. That way, your credit card is working for you instead of against you.

Related Post: How I Paid Off $70k of Debt in 3 Years on a Modest Salary

But what do you do if you’re already in debt? You can’t stay out of debt if you’re currently in debt. So let’s talk about two methods that can be used to get out of debt. These are the snowball method and the avalanche method.

Debt Snowball Method

The first of two methods for paying off credit card debt is the snowball method. Assume for a moment that you have three credit cards that each have balances and specific interest rates as seen below:

  • Mastercard: $5000 balance, 18% APR
  • Visa: $3000 balance, 17% APR
  • American Express: $7000, 16% APR

The snowball method works because you first pay the minimum monthly payments of all of your debts. In this case, that would be the three credit cards above. Then, you would apply additional money to the smallest debt first. For this example, that would be the Visa card.

After you have repaid the Visa card, you would use your extra money to pay off your Mastercard, since that’s the lowest balance.

The debt snowball method has a psychological effect: you are paying down balances faster in the beginning since you’re always focusing on the lowest balance. This can give you that great feeling that you’re getting somewhere, which you are!

The drawback of this method is that you’re paying more money in the long run from interest rates. The avalanche method solves this.

Debt Avalanche Method

The debt avalanche method works well for saving the most money, though it may feel like it’s taking longer to get out of debt. The way it works is simple. Line up all of your debts, pay the minimum monthly payments, and then use all of your extra money and apply it to the debt with the highest interest rate.

Let’s use an example:

  • Mastercard: $5000 balance, 18% APR
  • Visa: $3000 balance, 17% APR
  • American Express: $7000, 16% APR

In the same example, as we used for the snowball method, this time, we would pay all minimum monthly payments of the three credit cards and then put all extra money towards the Mastercard because the Mastercard has the highest interest rate.

Over time, this method will save you the most amount of money in interest payments. The drawback is that you may feel like it’s taking you longer to pay down balances because your highest interest rate debt may also have your highest balance.

5. Don’t Increase Spending When Your Income Increases

A key way to staying out of debt is not to spend more money when you receive more money. Get a raise or bonus at work? Bank that extra money or invest it for your retirement.

Related Post: A Simple Yet Detailed Guide to IRAs

Oftentimes, folks receive a raise at work and use that extra money to buy flashier things, or in short, to consume more. There’s nothing wrong with buying yourself something nice once in a while, but be wary of letting your lifestyle expenses creep up with your income.

This is called “lifestyle creep.” It’s when people’s lifestyle choices get more and more expensive as they make more and more money. The danger to this is that if your income is ever gone (loss of a job, for example), you’ll be suddenly living a lifestyle you can’t support.

Does that mean you should only live super frugally? Nah. My wife and I flipped a house and used a portion of the profit in 2018 to buy my dream car, a 1998 corvette. Could we have done without that purchase? Sure, but we were able to buy it without a car loan, which fit our budget.

6. Focus On What You Have

If you’re struggling to get out of debt or stay out of debt where applicable, then one thing to consider is behavioral. What is causing you to spend your money? Are you spending money on things that you actually don’t need?

It’s highly possible. If you’re drowning in credit card debt, you may be buying things you don’t need. This, of course, doesn’t apply for an emergency that blindsided you and you used your credit card to get out of. I’m not talking about that.

Related Post: Your Emergency Fund: Are You Saving Enough?

I’m talking about when you swipe your card because it’s easy to access. When behaviors like this happen, my best advice is to put the card away and focus on what you have in life.

Sounds like cheesy life coaching advice, right? It’s true, though. Focus on what you already have in life and stop buying new things so much. You may feel like you need something new, but do you really? Do you need those flashy designer clothes or a brand new car when a pre-owned or used car could go just as far?

It’s little decisions in life about focusing on what you have and not buying on every impulse that will allow you to stay out of debt.

Related Post: Stressed About Money? Here’s How To Stop

7. Have An Emergency Fund

An emergency fund will cushion you if you face a financial hardship. Without an emergency fund, you might get into debt when you can’t afford an unexpected expense. You might be forced to apply for a personal loan or use your credit card.

By having an emergency fund, you can pay for a crisis without sinking into debt. It’s ideal to have three to six months of living expenses in your emergency fund, though, at a bare minimum, you should have $1000.

Starting an emergency fund is easy. I personally use CIT Bank for their savings builder account. You can get a competitive interest rate by depositing $100 or more every month. This perk encourages you to save consistently and is why I have my emergency fund with CIT Bank.

8. Write Down Your Debt Repayment Plan

If you’re trying to get out of debt, first you need a plan. The best way to develop a debt repayment plan is to organize your debt and write down how you’re going to do it.

As I discussed above, your debt repayment plan might be to do one of either the debt snowball method or the debt avalanche method. It could be to stop spending as much, or it could be to build an emergency fund.

Whatever you choose, write it down (or type it up). Create a step-by-step plan and include both what you plan on doing and how you will do it.

For example, say you have a high balance on a credit card, and you want to pay it down over the next 12 months. Can you get a balance transfer credit card that has a 12 month introductory 0% APR? You would then pay a one-time fee to transfer your high balance and then pay no interest for 12 months, giving you a year to pay off your debt.

9. Get Credit Counseling

If you get into a situation where you have too much debt and no money to pay it, things may seem dire. When all else fails, consider getting credit counseling. Here are some quick tips to follow if you do intend to get credit counseling to help with your debt situation.

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  • Make sure the National Foundation for Credit Counseling accredits the credit counseling organization.
  • Check with the Better Business Bureau to ensure the firm is in good standing.
  • Stick to a credit counselor who makes you feel comfortable.
  • Beware of scams. If a company is pushing you to sign papers and pay them upfront, move on.

What you do as a result of credit counseling may lower your credit score short-term, but paying off your debt will help your credit score long-term, and that will help you more than being stuck in debt.

Wrapping It Up

Some debt is a mindset issue. We get caught up on spending more than what we bring in. Other times, we use access to a credit card as an excuse to spend frivolously. In the end, this can lead to financial hardships. To get out of debt and stay out of debt, it’s important to be smart about your spending habits and always have money saved up for an emergency.

After you've crushed your debt, you'll begin advancing on the later steps of financial freedom.

Until next time!

Get out of debt, stay out of debt, with these 9 best tips. Examine why you're in debt, don't consume as much, stop impulse buying, limit credit card use, debt snowball method, debt avalanche method, have an emergency fund



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