Are you ready to pay down your debt? With the right strategies, you can get back in control fast. This guide will show you how to conquer debt once and for all, so you can create a better future.
Understand Your Debt Situation
Before you can start conquering your debt, you must understand the exact amount you owe. Create a list of all your debts and their current balances, interest rates, and minimum payments.
How to Conquer Debt Faster: Seek Instant Savings
Did you know that most credit card interest rates are negotiable? The credit card industry is a competitive one and it is expensive to add a new customer. So they are motivated to retain your business.
If you can lower your credit card interest rate even by a percentage point or two, that will provide you with instant savings. That helps you pay off your debt faster.
There’s no cost to try and it just takes a small amount of time. You will just need to get organized and call each credit card company separately. Before you call, check how long you’ve been with the company, how many cards or other products you have with them, and find some alternative cards with lower interest rates that you can qualify for.
Then you’re ready to start dialing. Call customer service and say you’re requesting a lower interest rate on your credit card. Explain why you think it is appropriate: that you have been a customer for a while (the longer, the better) and you can get a lower rate elsewhere (have that other option in front of you).
If you get shut down, ask to speak to a manager. You should be prepared to negotiate and point out that these offers from competing cards are just a balance transfer away. You can also ask for one-time or ongoing discounts for customers who pay off their balance faster.
While we can’t guarantee success, it’s definitely worth a shot. A survey of 981 credit card holders who tried found that 78% that requested an interest rate reduction succeeded.
And every dollar you save on interest goes straight into your pocket.
Create a Budget (Spending Guidelines)
Creating a budget is an important step in taking control of debt. But here’s the thing: you can control spending without tracking every dime. The important thing is changing your mindset. (Check out our 5-minute free Mindful spending course.)
A budget will help you track and manage your monthly expenses. This can ensure you’re living within your means and help prioritize spending toward paying off debt. Your budget should include regular fixed costs (such as rent or mortgage payments) and variable expenses (such as groceries, dining and entertainment). It’s also important to factor in recreational spending, such as traveling and entertainment. With a budget in place, you can ensure that at least part of each month’s income goes to paying off debt.
Choose a Strategy for Paying Off Your Debt
While making minimum payments on all your debts can help you stay afloat, it will not help you pay off debt. Instead, you should choose one of two methods for paying off debt: the snowball method or the avalanche.
What is the Snowball Method for Paying Off Debt?
The snowball method for paying off debt is a popular strategy because it can feel emotionally rewarding. It involves organizing your debts from smallest to largest and paying off the smallest one first. This strategy works because it provides quick wins, which can encourage you to keep going.
When using the snowball method to pay off debt, you’ll start by making minimum payments on all your debts. However, you’ll put as much money as possible towards the smallest debt until it is paid off. Once that debt is paid off, you can move on to the next one and allocate any extra money toward this payment.
What is the Avalanche Method for Paying Off Debt?
The avalanche method for paying off debt is another strategy that focuses on getting you out of debt as quickly as possible. It involves organizing your debts by interest rate, with the highest interest rate debt being paid off first. This strategy works because by focusing on eliminating the most expensive debt, it helps you save more in the long run.
How do the Snowball and Avalanche Methods Compare?
The snowball method and the avalanche method both accomplish the same thing. The snowball method encourages paying off smaller debts first, motivating you to keep going. The avalanche method focuses purely on eliminating the most expensive debt first. On a strictly financial basis, the avalanche method is better. Still, if you’re miserable doing it, then it can be counterproductive. So pick one and commit. And, of course, nothing is written in stone. Some people like to do the snowball on the first debt for motivational purposes, then switch to the avalanche when you’re already in the debt payoff mode.
How to Stay Sane when you are in Debt Payoff Mode
Paying off debt can feel frustrating at times as you reduce spending but don’t initially see much progress. Hang in there! Keep in mind that everyone goes through that starting period. Later you will see progress happen faster as you get through higher interest rate debt. Here are a few tips on how to stay motivated while paying off debt:
Study wealth-building. When you commit to paying off debt, you are on the road to building wealth and creating a life of financial freedom. Now is the perfect time to use that time to learn more about money, spending and investing. Check out the many resources on this site in our financial wellness library, or look for other ways to acquire what can be life-changing knowledge. Feel good that at the other end, you will have the confidence that comes with taking control of your money!
Find an accountability partner. Having someone who is also committed to reducing debt can be an effective way of staying on track and not feeling down. Find a friend or family member to join you in the process. Or, use social media to find groups dedicated to paying off debt. Knowing you are not alone and sharing the journey can make it fun and provide support during weak moments.
Track your progress. Seeing tangible evidence of how far you have come is a great way to stay motivated when paying off debt. Keeping track of your payments and seeing the balance decrease will give you a sense of accomplishment and encourage you to keep going.
Reward yourself. Rewarding yourself for meeting milestones can be an effective tool in keeping up with your payments. Set aside small amounts of money to reward yourself with something special when you hit specific payment goals. This could range from a small treat to something bigger, like a new item for your home. Yes, this is additional spending, BUT with a big difference…it is controlled, planned spending. So you are building good habits with this strategy.
Create a list of free things you like to do. Hiking, exploring, and getting outside can help you have fun and get healthier while you minimize your spending. Check out alltrails.com or other apps to find local hikes. Or take a bike ride in the park, or take a great book to the park. Also, take a picnic to a park for lunch or dinner with friends and family for a fun time out. Google “fun free things to do” in your city, too.
Steer clear of the mall and magazines when conquering debt. Some things in life prompt us to want to spend. That’s all the billions of dollars of advertising money at work! It’s best to steer clear of malls when you can. Also magazines can tempt you with all the pretty ads on what you “need”. These too are best avoided.
Professional Advice Can Help Keep You Accountable When Repaying Debt
Need more motivation? Don’t worry; many people are busy and can use more help. One option is finding a financial planner to help you and keep you accountable. Paying for the service can go a long way in motivating you to stay on track.
A quality financial planner can help you with more than just paying off debt…they can help you plan to build wealth and achieve financial security.
Just be sure to hire carefully. We recommend you look for a CERTIFIED FINANCIAL PLANNER™. They will have a CFP® mark after their name. Those who have earned this credential have fulfilled several requirements, so it helps ensure you hire someone qualified to give you the best advice possible.
CFP® program requirements include:
- Rigorous coursework on all aspects of personal financial planning
- Demonstrated years of experience as a financial planner
- Must pass difficult exams
- Must commit to ethical requirements
- Keep their knowledge current with continuing education
These professional financial planners are experts at how to conquer debt and build wealth, so they can be a fantastic resource.
Debt Consolidation can also Help you Pay Off Debt
Another option to conquer your debt is to work with a debt consolidation company. These firms will actively negotiate discounts on your debt to lower what you owe. Then they will also consolidate your debt so you can make one payment instead of several. This helps simplify your life by having only one monthly payment and a fixed interest rate.
Working with a debt consolidation company is not always the right solution for everyone. However, these programs can reduce debt quickly and help you re-establish good credit status if used correctly. It is essential to research various companies before deciding upon one to find the best fit for you since different companies provide different services and charge varying fees.
Key Takeaway on How to Conquer Debt
Debt can feel crushing; but remember, you are ultimately in control. With the right mindset and plan, you can conquer your debt once and for all.
Find more spending tips to help you conquer debt in our Smarter Spending section.
Take our 5-minute mindful spending course to keep those spending urges away!