You're not alone if you're struggling to pay off debt and have little money to spare. 47% of Americans have been in debt for more than five years. Getting out of debt is difficult but can be done with financial changes and a solid plan.
I was in nearly $20,000 debt about a decade ago, so I know how overwhelming the stress of debt can be. Bad debt takes the joy out of almost everything.
In this article, I'll review some tips and strategies that helped me get out of debt. You can use several methods, such as the Debt Snowball or the Debt Avalanche. Whatever works for you is fine. However, I've found the Debt Snowball method more effective when tackling debt on a smaller income.
Now, let's get down to how you can implement these strategies and start paying off your debt.
Debt Avalanche vs. Debt Snowball Method
Two widely recognized approaches to debt repayment are the Debt Avalanche and the Debt Snowball methods. In the Debt Avalanche method, the focus lies on tackling high-interest debts foremost, prioritizing them for repayment. Conversely, the Debt Snowball method emphasizes starting with the smallest debts and gradually moving on to larger ones.
Both methods entail creating a list of debts and ensuring minimum payments on all but one targeted debt. Once that specific debt is cleared, attention shifts to the next debt on the list, progressing until all debts are paid off.
Choosing between these methods often depends on individual preferences and personal financial situations, with understanding the nuances aiding in making an informed decision that best suits your needs.
Debt Avalanche Method
The strategy known as the Debt Avalanche involves allocating minimum payments to all existing debts while directing any additional funds toward paying off the debt with the highest interest rate. You can save more on interest payments by employing this method.
For instance, suppose you do have some extra money each month to allocate toward debt repayment. Consider the following debts:
- $10,000 in credit card debt at an annual percentage rate (APR) of 18%
- $10,000 car loan with an interest rate of 3.00%
- $12,000 student loan carrying a 5% interest rate
In this scenario, applying the avalanche method would prioritize paying off the credit card debt due to its higher interest rate.On the other hand, following the snowball method would address the car loan first.
If you are burdened with substantial debt, opting for the avalanche method by targeting debts with the highest interest rates can sometimes accelerate the debt repayment process by several months.
Debt Snowball Method
The Debt Snowball strategy initially centers on clearing the smallest debts before progressing to larger ones. It revolves around tackling the most manageable tasks at the outset.
First, compile a list of all outstanding debts in ascending order based on their respective sizes. The primary focus is on paying off the smallest debt first. After ensuring minimum payments on all bills, allocate any additional funds towards these targeted payments.
Using the above example of debt and interest rates, the snowball method would have you focus on the car loan first because you owe the smallest amount of money on it. You'd settle it, then tackle the other two.
Ways To Pay Off Debt With No Money
The above methods are great if you have income to pay down your debt. However, you must do a few things first in order to start paying off debt with little or no extra money, starting with assessing how much money you have available each month and going from there. The steps below will help you effectively pay off your debt with little income.
Assess Your Income
Start by looking at your income. How much money do you bring in each month? Do you bring in any or not? If you're bringing in nothing and your debt keeps piling, the stress of this debt can often lead to serious health issues.
The first thing in this case should be to get employed. You need money, no matter how little, for you to be able to pay your debt.Find an income source. Keep track of this income, including your salary, any side hustles, and any government benefits you may receive.
Identify Your Debts
Once you know how much money you have coming in and going out, list all your debts. List your credit card debt, loans, and other outstanding bills.Write down the interest rates and minimum payments. This information will help you prioritize your debts.
Focus on paying off the debts with the highest interest rates first if the avalanche method is what you want to go with. I've found the snowball strategy more effective, but whatever works for you is fine if you stick to the plan.
Sometimes, finding the one that aligns with you might take trial and error.Paying off debt takes time, so you must be patient to avoid getting overwhelmed.
Track Your Expenses
How much are you spending on a weekend or a weekday? When you're feeling good, or when you're down?Identify where your money goes. It's natural to desire many things. Sometimes, this desire leads to impulsive spending. So, this can be a problem.
To avoid this, write down everything you spend money on each month. This includes rent and utilities, groceries, and entertainment. Be honest with yourself. Leave nothing out. This way, you'll know the triggers to avoid and when you're overspending.
Create a Budget
Prioritize the debts in your budget and set aside money for savings and emergencies.Stick to your budget as closely as possible to avoid overspending. By understanding your financial situation, you can create a plan to get out of debt with no money.
Of course, it takes time and effort, but with dedication and discipline, you can do it. I did it, and so can you. Make a list of all your necessary expenses, such as rent, utilities, groceries, and transportation. These are must-have expenses. You cannot live without it and must pay each month.
Next, prioritize your necessary expenses. Determine which expenses are most important and which can be reduced if necessary. For example, you can reduce your grocery bill by buying generic brands or shopping at discount stores.
Cutting Unnecessary Costs
Once you have identified your necessary expenses, it's time to cut out any unnecessary costs.This can be difficult and typically means sacrificing some luxuries or things you enjoy, but getting out of debt is necessary.
Start by considering your discretionary spending, such as eating out, entertainment, and shopping. Determine which expenses are essential and which can be cut back on.For example, reduce your entertainment expenses by finding free or low-cost activities in your community.
Finally, consider selling any items you no longer need or use. I've found The Facebook Marketplace helpful when trying to get rid of stuff without hassle.The extra money you make from selling stuff will be put towards paying off your debt.
The most challenging part about paying down debt requires lifestyle changes.Of course, it's only temporary, but you'll have to cut back on certain areas if you will free up money on your budget to put towards paying your debt.
Increase Your Income
This article is incomplete if I fail to mention increasing your income. Increasing your income makes a big difference if you struggle to make ends meet while paying off debt.
When I was in debt, I found it pretty challenging to get rid of my more significant debts until I began to offer freelance services online. The extra money I made off my side hustle helped me to tackle some of these more troublesome debts.
Here are some ways you can bring in a little extra money:
- Find additional work – As mentioned, I took on freelance work to boost my income. I suggest looking for opportunities that fit your skills and schedule. For example, if you're good at writing, offer your services as a freelance writer, like I did. If you're handy and have no problem being in front of a camera, look into starting a YouTube channel. You may not earn from either of these things ASAP, but they'll give you the purpose and motivation to keep pushing.
- Invest in skills or education for better job prospects – You can invest in skills or education through online courses, vocational training, or part-time education options. Look for affordable or accessible resources to upskill while managing your debt.
- Sell unwanted items – Look around your home for items you no longer need or use. These could be clothes, electronics, furniture, or anything in good condition. Sell these items online through websites like eBay or Craigslist, or you can have a garage sale.
Negotiate With Creditors
Negotiating with creditors is daunting when you're in debt and have little money to spare. However, it's important to remember that creditors are often willing to work with you to find a solution that benefits both parties.
Here are some tips for that:
- Be honest and upfront – Be honest about your financial situation. Lying to yourself or others about the severity of your debt does nothing to help the situation. Remaining in denial or refusing to confront the problem will get you nowhere.
- Request a payment plan – Instead of trying to negotiate a lump sum payment, offer a payment plan that you can afford.
- Ask for a lower interest rate – If you have high-interest credit card debt, ask your creditor if they can lower your interest rate.
If negotiating with creditors seems overwhelming, consider working with a nonprofit credit counseling agency.They can help you create a debt management plan and deal with your creditors on your behalf.
Seek Professional Help
If you're struggling to get out of debt with no money, seeking professional help might be a good option. I'll talk about a type of professional help that you can consider credit counseling. This service provides education and guidance to help you manage your debt.
A credit counselor will work with you to create a budget and develop a debt management plan. They can negotiate with creditors to lower your interest rates and monthly payments.
To find a reputable credit counseling agency, look for one accredited by the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA).Make sure you research and choose a reputable credit counseling agency or lender.
Staying Debt-Free
Staying debt-free is essential once you've successfully paid off your debt or are still paying it off. This means that you have to avoid taking more debt.
Here are some tips on how to maintain your financial stability:
Get Around Other People Who Want To Grow
Consider joining a community of like-minded people who want to grow as you do.Being in a community helps you stay motivated. And when you hear other people's stories, you realize, “Hey, I'm not the only one in debt,” which can be reassuring, knowing you are not alone.
Many people face insurmountable debt, and coming together to share strategies, pain points, and the like can make a huge difference.
Build an Emergency Fund
This fund should cover at least three to six months of your living expenses. Having an emergency fund will help you avoid relying on credit cards or loans in case of unexpected costs, such as a medical emergency.
Set aside a small amount each month to build your emergency fund. You can automate this process by setting up a direct deposit from your paycheck to a separate savings account. Consider opening a high-yield savings account to earn more interest on your savings.
Maintain Good Financial Habits
Maintaining good financial habits is crucial to staying debt-free.
- Create a budget and stick to it.
- Avoid unnecessary expenses.
- Use credit cards responsibly.
- Build your credit score.
- Stay informed.
By following these tips, you'll be on your way to staying debt-free and achieving financial stability.
Three Steps You Can Take To Avoid Debt
Once you have paid off your debt, you must not fall into the same trap again. Make sure to avoid debt at all costs whenever possible. Here's a few pointers for doing just that:
- Create a realistic budget – This will help you manage your finances effectively and ensure you live within your means.
- Save money for unexpected expenses – An emergency fund can prevent you from relying on credit cards or loans during unanticipated financial challenges.
- Live below your means – Practice frugality by spending less than you earn. Avoid unnecessary purchases and be mindful of your financial decisions.
How Long Does It Take To Get Out of Debt?
The time it takes to get out of debt depends on several factors, including the amount of debt, your income, and the strategies you use. Generally, a realistic timeframe for debt repayment can range from several months to several years.
If you have a small debt and can allocate a significant portion of your income to repay it, you may clear it in a few months. However, more enormous debts or lower income may extend the process.
Making and sticking to a plan is vital, even if reaching your goal takes a long time. After all, getting out of debt is not a race; think of it as more of a marathon! You've got this!
