As of 2017, Americans had about $784 billion in total credit card debt and owed $1.34 trillion on student loans. That’s trillion, with a “T”! Approximately half of all the people in the U.S. also either have no emergency savings at all, or have an inadequate amount set aside to protect them in a financial emergency. If you have debt, saving money can be difficult. It is possible, but it takes starting with small steps, and remaining consistent in your actions. Here are some tips to help you pay off your debt faster, even if you are on a tight budget.
1. Look at the whole picture. To know what you’re working with, you have to get it down on paper. Take inventory of all of your debt, from the smallest credit card balance to the largest monthly payment (probably your mortgage). You can’t tackle the problem if you don’t know what you’re facing.
2. Make a decision; set a goal. Make the decision to conquer your debt. Just because it may seem insurmountable doesn’t mean that it is. A journey of a thousand miles starts with the first step, so set a target date for your financial freedom. How soon do you want to be debt free? Six months? One year? Two years? You probably did not get in your current debt position overnight, so be realistic with your goal date.
3. Review your budget. If you’ve been keeping a budget, you know where your money is going. If you haven’t, that should top your priority list. There are plenty of budgeting apps and free information on the internet to get you started. Look for places you can trim, even if it’s just a little bit. Can you drop a monthly subscription? Could you eat out less often? Can you cook less expensive meals (think meatless Mondays) at home? Do you have a hobby you can spend less on? Can you carpool to work and save on gas? Could you adjust a category (think Netflix and Hulu vs. DirecTV or cable) without totally cutting it out? Can you bundle services to save money? Is it possible to get a less expensive cell phone plan? If you can squeeze even a few dollars out of one or more budget categories, you can put that money toward your debt.
4. Start small, and snowball. Target one debt for payoff and bring all your resources to bear on getting that one debt paid off. Make minimum payments on your other debts and pay as much as you can on your target debt. Small victories are inspiration for larger ones, and once your first debt is paid, the feeling of satisfaction will have you searching for other ways to generate or find extra money to pay off subsequent debts. Once the smallest debt is paid, take the money you were paying on that debt every month and apply it to the next largest debt, thereby increasing your monthly payments. This is called the “snowball effect” or “pyramid method”. No matter what you call it, it works. Continue this method with debt number three, adding the amounts you were putting toward the first two debts, and you’ll soon realize how fast you can pay that debt off.
5. Use your tax return. If you get a tax return every year, you’ve probably got it spent mentally before it ever shows up in your bank account. As tempting as it is to use that money for something that you have been dreaming of, bite the bullet and use all (or at least most of) that money to pay off debt. Or maybe you’re expecting to receive a bonus at work, or even an inheritance? Be smart about where you spend your money, especially when it is a windfall.
6. Consider freelancing for extra funds. Are you skilled in an area that people would be willing to pay you for? Freelancing can help you make a few dollars on the side. Think outside the box; it doesn’t have to be related to your current job or even necessarily a special skill that only you possess. There are people who will pay you to walk their dogs, rake their leaves, mow their lawns, or even house sit. Be committed to finding ways to increase your income and dedicate the extra money you earn to the debt payoff fund to speed things along.
7. Celebrate your victories. Give yourself permission to celebrate each debt payoff (in inexpensive ways, of course!) Everyone deserves a pat on the back in recognition of achieving a goal, so show yourself some love along the way to your total financial freedom.
Once that bright day dawns and you are debt free, don’t stop there! If you were able to find or generate extra income during your debt payoff days, why not keep the good habits you develop going by increasing your savings, starting a retirement fund for yourself or a college fund for the kids, or cutting up all your credit cards? Be different than those millions of other people living in debt and make the decision to pay cash for everything from now on. With the money you are no longer putting toward debt, seek out a reputable financial advisor and start investing your money. Remember how good it felt to pay off each debt along the way? Imagine feeling that way every day, as you stay out of debt, establish an emergency fund, and start reaping the manifold benefits of smart money management.