3 Essential Steps to Paying Off Debt, According to People Who’ve Done It
It’s been a long two weeks, so if your 2018 resolutions have mostly flown out the window, we won’t judge.
What we *are* super psyched about is that there’s a good chance your financial resolutions (the ones we really care about) are probably still in good shape. Last year, 64% of people who resolved to pay down their debt were successful at it. And the average debt paid off, according to a new survey from Compare Cards, was $7,500. That’s no small chunk of change.
People in the “successful” camp had three things going for them: an emergency fund in place to lower the chance of racking up more debt, a specific plan to reach their goal, and reduced spending that allowed them to put more money toward their balances. Here’s how to nail this:
1. Build up an emergency fund. Having a well-stocked emergency fund can offset the chances that, if you have an unexpected trip to the doctor or your car goes kaput during rush hour, you won’t have to charge it and pay it off with interest.
If your reaction to this tip is “what the heck is an emergency fund, and how much should be in it?” aim to save at least one month’s worth of expenses to begin with before you prioritize any other money goal.
Having this rainy day fund can prove helpful to your debt-payoff goals, not to mention your own peace of mind — 64% of Americans who successfully paid down debt in 2017 had an emergency stash in place.
2. Create a specific debt-payoff plan. Once you can check off having an emergency fund (plus a plan to build it up beyond one month’s expenses), turn your attention toward your debt. First things first: How much debt do you have, and where is it coming from?
List each credit card or loan, its balance, minimum payment and interest rate. Which debt you choose to tackle first will depend on several factors (including what will keep you motivated most) but whatever you land on, just make sure you’re still making minimum payments on everything else.
3. Reduce your spending. Sure, this one’s obvious — the less money you spend from each paycheck, the more you can put toward your debt payments. But actually doing it? Yeah … not so much. For some, cutting out everyday expenses is one way to do it (goodbye $15 salads). For others, you might consider paring down big recurring costs that really eat up your budget: food, utilities, subscriptions, phone bills and the like.
On the flip side, you might also choose to up your savings game entirely by taking on a side gig, something that 20% of people from the survey did. After all, the gig economy abounds with ways to make extra money beyond your day job — and hey, you might not even have to leave your couch. Good luck!