Your Step-by-Step Guide to Getting Out of Debt in 2018

Best Practices

As you commit to being debt free, we provide you with some tips on how to make it happen before the end of the year.

Debt. The word itself is heavy. It’s like having a mountain on your back and being asked to carry it like Atlas. In America, pretty much everyone has some debt. 65 percent of Americans have mortgage debt totaling $8.74 trillion. But mortgages are considered an acceptable debt. However, many Americans also face rising consumer debt along with student debt.

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As of September 2017, Americans have over $900 billion in credit card debt. According to The Motley Fool, “The average American household carries $16,048 worth of interest-bearing credit card debt, which is perched around highs not seen since the Financial Crisis.”

Although not everyone’s mountain of credit card debt is that high, GoBankingRates says that half of all Americans have credit card debt. Also:

  • One-third of Americans have vehicle debt
  • One-fourth have student loan debts
  • more than one-fifth have medical debts

With each person having their own mountain of debt to overcome, it may seem impossible that anyone can get out from under it. But it is possible to get out of debt. Below is a step-by-step guide to help you get out of debt in 2018.

Commit to Being Debt Free

In the classic boxing movie Rocky, the title character, played by Sylvester Stallone, is given a shot at the world heavyweight boxing title. The ‘Italian Stallion’ then does everything possible to prepare for the big fight. Rocky runs, trains, and even punches huge beef carcasses. He is totally committed to the fight.

Like Rocky Balboa, you need to be totally committed to doing everything within your power to get out of debt. Tell yourself that you will work hard to get out of debt. Before you even start the process, you must commit to it.

Learn Where Your Money Goes and Make a Realistic Budget

Personal finance guru Dave Ramsey says, “A budget is telling your money where to go instead of wondering where it went.” You might have no clue where your money goes. To remedy this problem, make a monthly budget.

First, you need to know how much money you make each month. Then you should figure out how much money you need to spend on housing, utilities, groceries, phone, car-related expenses, public transportation, insurance, student loans, and other regular expenses. You also need to know how much money you spend on non-essential expenses like new clothes, going out with friends, coffee, and other things.

To get out of from under your mountain of debt, you need to free up some cash in your budget to pay off debts. If you only make enough money to cover your expenses, it will be harder to get out of debt. That’s why it is important to know where your money goes.

Make Budget Cuts

Once you learn where your money goes, you may discover that you don’t have enough money to pay down your debts. But if you are committed to being debt free, you must be willing to cut things out of your life, at least temporarily. Below are suggestions for things to reduce or cut out of your monthly budget:

  • Going out - Do you love going out with your friends? If you go out every weekend, you could cut back to every other weekend. Or just once a month.
  • Clothing - Do you frequently buy new clothes or shoes? Ask yourself if you need them. If not, either stop buying new clothes or set a monthly spending limit on clothes and shoes.
  • Restaurants and eating out - Do you eat out more than you eat at home? Stop going to restaurants and start eating at home. Also, instead of buying lunch at work, take your lunch.
  • TV and screens - Do you love your screens? You don’t have to become a ‘cord cutter,’ but if you have cable or satellite as well as Netflix, Hulu, and Amazon Prime, you can cut out one or more of these services.
  • Sell some stuff - Still can’t find money to pay down debts? Consider selling some of your stuff like clothing, shoes, jewelry, vehicles, collectibles and other things to free up cash to pay off debts.

Once you know how much money you have, where your money goes, and ways to cut back on spending, you can chip away at your mountain of debt. But first, you need to know what you owe.

List Your Debts

As painful and discouraging as it is to see all your debts laid out before you, you need to know exactly how much you owe and to whom. Collect your recent statements from auto loans, personal loans, credit cards, student loans, unpaid medical bills, and other debts. Then write down how much you owe, the names of the creditors, and the interest rate for each debt.

Stop Using Credit Cards

Since half of all Americans carry credit card debt and the average balance is over $16,000, one of the first things to do is stop racking up credit card debt. Take your card (or cards) out of your wallet and put it in a safe place. Also, remove credit card info from online merchant accounts.

If you can’t stop using your cards, give them to someone you trust for safekeeping until you’ve paid off your debts. You could also ask your credit card company to freeze your account to make it temporarily unusable. Or, you could literally freeze it – stick your card in a bowl of water and put it in the freezer! Regardless of what steps you take, do something to stop yourself from increasing your credit card debt.

Now that you know your debts and aren’t creating new ones, you can start paying them down.

The Snowball Method

Financial expert Dave Ramsey offers practical advice which has helped tens of thousands of people get out of debt. Ramsey gives great pieces of advice like: “Act your wage,” and “You must gain control over your money, or the lack of it will forever control you.” Not everyone is a fan of Dave Ramsey, but he does offer good solutions for some people.

One of his solutions for helping people get out of debt is the Debt Snowball Plan. Ramsey encourages people who have multiple debts to tackle the smallest one first. Other advisors also use the snowball method but suggest prioritizing the debt with the biggest interest rate. Either way, by paying off one debt, you give yourself a “win” which shows that you can get out of debt.

Before paying off debts, Ramsey encourages people to get current on all their bills and save $1,000 as an emergency fund. Then you pay off your smallest debt while still making the minimum payments on other debts.

After erasing your smallest piece of debt, you move to the next biggest one. But you add the money you were paying on your smallest debt towards paying the next debt. This way, you ‘snowball’ your money from one debt to the next and compound your ability to pay off debts.

Track Your Progress

Every dollar paid toward your debts is one less dollar you need to pay in interest. Knowing this, it makes sense that getting out of debt saves you money. To stay aware of how much debt you’ve paid off and how much you have left, use a spreadsheet or paper and pencil to track your debts. Celebrate your victories.

At the same time, as your mountain of debt shrinks, don’t create new ones. Stay committed and stick to your budget. Also, continue tracking expenses to make sure you aren’t overspending.

Do a Balance Transfer

What is a balance transfer? Essentially, you transfer the money you owe (the balance) from one credit card account to another credit card account. It is possible to get a credit card with zero percent interest introductory rate. Eventually, you will pay interest again on the balance, during this introductory period, you can pay off some credit card debt without interest. If you don’t qualify for a credit card with zero percent interest rate, it can’t hurt to call your current credit card company and request a lower rate on your balance.

Cut Your Debts Without Spending Money

There are also other ways to cut your debt without taking any money out of your pocket:

  • Refinance auto loans at a lower rate to pay less interest.
  • For student loans, consolidate multiple loans or try to lower your payments. Visit StudentLoans.gov for more info.
  • If you get a bonus at work, a tax refund, or a financial gift from family, don’t blow it on a celebration. Use it to attack your mountain of debt.

Ask Yourself: Why Am I in Debt?

At some point, to keep from repeating past mistakes, you should examine the reason (or reasons) why you are under a mountain of debt. It might be a single factor, or it could be a mix of several things, like the following:

  • Keeping up with the Joneses - In his book The Total Money Makeover: A Proven Plan for Financial Fitness, Dave Ramsey, says, “We buy things we don't need with money we don't have to impress people we don't like.” Are you spending money that you don’t have? If so, you need to stop.
  • Stagnant wages, unemployment, or underemployment - The Motley Fool lists a number of reasons why so many Americans are in debt, specifically credit card debt. “Several factors underlie this trend, including the fact that expense growth has outpaced wage growth over the past decade, and Americans have a hard time sticking to a budget.” Stagnant wages have forced many people to rely on credit cards and financial products like personal loans to help them make ends meet.
  • Lack of financial role models - Many people never had a good model of how to handle money. When they were growing up, maybe their family lived in debt and accepted it as a way of life. Because these people never learned how to make a budget and stick to it, their finances are in shambles. However, it is never too late to learn how to manage your money.

Get Out From Under Crushing Debt in 2018

For many Americans, being in debt is a way of life. We learned it from our parents who were always under a mountain of debt. Some of us listen to the world around us and spend money to keep up with friends and neighbors.

Getting out of debt is good but staying out of debt is better. Once the glorious day comes when you are out from under your mountain of debt, you need to make a conscious decision not to go back to your old ways and not pass them on to the next generation.

Like Atlas, condemned to hold up the sky for eternity, your debt feels like it’s crushing you. But there is hope. You don’t need to live the rest of your life under a mountain of debt. Follow the advice in this article to help yourself get rid of your mountain in 2018!

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