"I’m drowning in debt."
It’s a phrase often thrown around to describe being deeply in debt. But anyone who has experienced large amounts of debt understands—it’s hard to take a breath when you’re feeling anxious and overwhelmed.
But there are answers. Through careful budgeting, you can recover your financial well-being and breathe deeply again.
First, make a monthly budget.
Begin by carefully going through your monthly income and expenses. This includes mortgage, rent, auto payments, insurance, utilities, phone, internet, cable, groceries, childcare, and transportation. Any money put towards an emergency fund or savings also needs to be included. Also, consider spending that goes toward dining out, travel, recreation, entertainment, and other miscellaneous expenses. Once you’ve gathered all your financial information in a spreadsheet or budgeting website or app, you need to decide, how are you going to pay off your debt?
The snowball method yields faster results.
While there are a couple of strategies you can apply when paying off your debt, the snowball method often produces faster results that are more immediately rewarding. This strategy works by taking any extra money you have leftover and paying it toward your smallest debt while also maintaining minimum payments on all your other debts. Once the smallest one is paid off, you take the money you were paying toward that and apply it to the next smallest debt. By following this strategy, you start to reach your goals more quickly. The debt avalanche is another method that works much the same way, except you would pay your debt with the highest interest rate off first. While this may save you money over time, the snowball method provides an incentive by reaching initial goals more quickly.
Keep adding to that snowball.
You can pay off your debts faster if you continue to minimize expenses when you can. Whether that’s from reducing entertainment expenses or eating in, that extra money can be put toward your debt.
Still having a hard time? Try a debt management plan.
Everyone needs help sometimes. If you’re still struggling to pay down your debt, talk to a credit counselor about enrolling in a debt management program. If you qualify, a credit counselor will talk to your lenders about consolidating your loans into one affordable monthly payment. Debt management programs are designed to be paid off in three to five years so that you can free yourself from debt more quickly.
The bottom line is—don’t lose hope. There are methods of paying down debt so that you’re able to reduce the impact it has on your life.