When you’re drowning in debt, often it feels like the world is caving in around you. Your ideas are swirling and just will not stop. You’re not sleeping, and you are concerned in case your next paycheck will probably be enough to provide for your loved ones. And then the questions fueled by endless anxiety start: How will I make ends meet? How on earth will I cover my mortgage/rent this month? Can these debt collectors phone my own boss (how embarrassing)?
You are not alone. In fact, 78% of Americans now are living paycheck to paycheck. 1 That usually means you’re not the one person who’s been in debt. In fact, Dave knows what drowning in debt feels like all too good. So will you. Choose–right this moment–to start changing the way you interact with money.
Did you know that personal finance is 80% behavior and only 20% head knowledge? That means using a plan–and a lot of challenging work–you can be standing on solid ground in no time. And who knows? You could even develop into an everyday millionaire or have credit card debt.
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What to Do When You’re Drowning in Debt
1. Get on a budget
Doing a budget is one of the most crucial actions you can take when you’re drowning in debt. A budget will be the very thing that will show you where your money is about and why you feel like you’re drowning. But you don’t have to feel that way anymore –and a budget can help!
When you are making your zero-based budget, you might be tempted to account for all of your extra expenses first.
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But first, you need to make sure that your basic needs are satisfied. We call all of the Four Walls, and they are:
- Food
- Utilities
- Shelter
- Transportation
Now, after you’ve budgeted for groceries, water, power, your lease or mortgage, and gasoline to get one to work (in this order), you can start assigning any remaining bucks to other urgent needs. Do you have student loans or a car payment? Are those hospital bills piling up? Or maybe your dad’s birthday is coming up and you at least need to send a credit card. Need to go to the doctor this month? Yup–make sure that you put that in there also. Remember: Income minus expenses must equal!
2. Cut back on the”extras.”
Now that every dollar was accounted for, it’s time to see where you can cut back.
Take a list of any automatic payments that routinely come out of your bank accounts. Maybe you have a $7 subscription to the clean beard club. We are not knocking beards–notably clean beards–but these kinds of expenses add up quickly. Additionally, that free gift they offered you once you signed up is probably long gone, leaving you with a subscription you keep forgetting to cancel each and every month–and much more beard oil than you understand what to do with.
Don’t get us wrong, we love a good mail day exactly like another person. You guessed it: We’re talking about cutting back on those nonessential items and getting your”want-itis” under management. Here are some tips:
- Make coffee at home (jump the $5 lattes until you’re no more drowning in debt).
- Cut back on your grocery bill by clipping coupons and moving without the kids so you’re unable to overspend on Oreos. Psst: Leftovers are your friend.
- Do not even step foot in a restaurant unless you are working there.
- Sell everything that is not nailed down. Cease all investing.
3. Pause all investing
Truly? Yep. Saving for your future when you are living paycheck to paycheck (or worse) isn’t the best idea. At least not yet. If you’re still wanting to pay off credit cards, an upside-down car loan, or a huge heap of student loan debt, it is time to press pause on your future investments temporarily. This temporary pause frees up extra cash you may use to pay off your debt.
Don’t worry, you’ll come back to them once you’re debt-free.
4. Do not take on any new credit card debt
None. We know it’s hard (and maybe not what you’ve been used to), but trust taking on debt frees you and your loved ones of a stable financial future. Your options right now can and will impact future generations of your family tree. So don’t take on even another cent of debt.
No medical expertise required. Yup–we are talking about cutting up those credit cards.
You may feel your heart start to race and your palms begin to sweat. But let us remind you: Having a credit card for emergencies looks like a good idea until your next”crisis” looks like your next afternoon coffee run. When you cut up those credit cards, you are picking to put an end to the merciless cycle of debt for good.
5. Increase your income
Now that you’re on a budget and you’ve decided to stop taking on any new debt altogether, it is time to figure out how you can increase your income. Take a second job or pursue a negative hustle that can provide you the extra income you need (as fast as you can ) to throw at your debt. Whether that’s working at your regional coffee shop, mowing yards, or forcing you to get a ride-hailing service like Uber or even Lyft, you’ve got to bring in more cash.
We get it. No one would like to work round the clock. However, in order to see that mountain of debt become a valley, you have got to start doing something different. Remember: This is not forever. You will not be skipping out on time together with family and friends for the long haul. But so as to get on the right path, you’ve got to start making sacrifices today.
6.Start working the debt snowball.
Now that you have got any extra money coming in each month, it is time to start paying off your debt using something we call that the debt snowball strategy :
- List your debts from smallest to largest–regardless of the lower interest rate.
- Strike the smallest debt with everything you have. Can you sell the sofa? Great–throw your earnings on this debt. Keep putting anything extra you make toward this debt until it is gone.
- After that debt was paid, take the minimum payment (plus that money from your job) and toss it in the next biggest debt while paying minimum payments on the remainder.
- Keep this snowball rolling till you’re debt-free!
Want more debt snowball tips? Subscribe to this particular free, three-day email series which will send helpful tips and encouragement straight to your inbox.
7. Stop the comparison trap.
Replies is one of the worst things you could do while you’re getting out of debt, and social media is one of the biggest culprits. If you are scrolling through your news feed and see your friend (whom you have not talked to in years) on a European vacation with her mother, that does not give you consent to plan a fancy vacation also. Nope. Europe will still be there once you’re completely debt-free.
When you are in debt and going after your debt with gazelle intensity,* it is difficult not to compare your financial situation with other people’s situations. But here is the truth: You don’t actually know their financial situation. We don’t know whether your buddy put her fancy holiday on a credit card. But we do understand that as soon as you’re out of debt, you are going to be able to plan these trips of your own. If you’re falling into the comparison trap, it might be time for you to take a much-needed break from social networking.
8. Start (or keep) functioning the Baby Steps.
Have you heard of this Baby Measures? These seven steps are proven (and practical) ways to help you change your life. And now that you’re standing on more stable ground, you’ll want to follow these steps all of the way to creating wealth and giving.
Baby Step 1: Save $1,000 to your starter emergency finance.
Baby Step 2: Pay off all debt (except the house) using the debt snowball.
Baby Step 3: Conserve 3–6 months of expenses in a totally funded emergency finance.
Baby Step 4: Invest 15 percent of your family income in retirement.
Baby Step 5: Save for your children’s college fund.
Baby Step 7: Build riches and give.
But like we said earlier, it doesn’t need to be this way. And remember: You’re not alone in this.
Find Ways to Raise Your Income and forget about drowning in debt
Request a raise; the worst that happens is that the boss says. If they say yes, use all of the extra income to paying down your debt.
See whether you can add a second job. Even an extra $50 or $100 per month to use to credit card debt issues.
Obviously, the second job could be easier said than done, particularly if there is a family and you’re a single parent and the finances seem to be overwhelming. But in this market, there are options that were not there five years back: Throughout the gig economy.
Driving for Lyft or Uber, providing meals for DoorDash, walking puppies through Rover, getting and delivering markets with InstaCart all can offer some extra income that may be applied to debt and would require just a few hours a week. And they are done on your time. Do not wish to drive or deliver meals on Tuesday? Do it Wednesday. Setting aside that money for debt repayment is a disciplined way to attack the challenge and use credit counseling.
Avoid Bad Deals, Payday Loans & High-Interest Rates
There are people out there who will offer”simple” ways to get out of debt. Be wary, ask questions, and examine the specifics.
Checks from credit card companies may seem appealing, but they usually include extra-high interest rates, meaning that instead of debt management you’ve added to it. Payday lenders typically charge outrageous rates that only serve as a boulder tied to your toes.
Some credit cards will provide promotional deals that have zero interest and credit score. These are an appealing choice. But read the fine print. Twice. Most of these trades require the total to be compensated in a set time (12-18 months).
It can’t be stressed enough: With a promotional interest rate could be successful, but you must be disciplined to make certain that the loan is paid back at the time agreed to initially.
Also, before agreeing to the”deal,” check to see whether there’s a balance transfer fee, and also the price. Some charge as much as 5%. All of these are measures by credit card companies developed to get your money by credit counseling and credit score. Zero-interest is great but reads the fine print. Then if you are not sure about something, have a friend or relative read it, to be certain.
Take our free, video to find out where you stand with debt. We’ll give you a curated collection of next actions and resources to help you get started on your journey to financial peace and great personal finance.
Drowning in debt with credit card: video
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