Top 5 Keys to Getting Out of Debt Now

For many years, the number one New Years resolution was to lose weight. Things have changed and financial wellness is now just as important as physical wellness. According to a recent survey conducted by Ipsos for Urban Plates, over half (51%) of Americans are choosing “Manage Finances Better” as their top goal for 2020. “Eating Healthier,” (not losing weight) was tied with managing finances and shows how we have evolved in the United States over the last few years.

How do I start?!

Here are top 5 keys to getting out of debt, all of which you can start TODAY!

Write a budget and STICK to it

When I first had the urge to take control of my finances, I had to figure out where I was. I have found one of the best ways to do this is by creating a budget. Gather all of your bills, your paystubs and any other financial documents you think you need and clear the table. If you are a wiz on Excel, you can throw it all into a spreadsheet. If not, no worries! A pad of paper will do. If you have no idea how to do a budget, check out this blog post and you can download a free sample budget at the bottom of the post.

Once you have your budget done for the month, stick to it! Make sure you are using cash for things like groceries, spending money and anything else that is budgeted, especially if it something that can easily be overspent on like buying lunch. The envelope system works really well for that and is tried and true! Set aside money each week in an envelope for your groceries, spending, etc. When you are out of money, you are done. No more spending. I have fallen for the idea of using my debit card for groceries and it never fails, I end up overspending. Using cash makes you FEEL the money being spent and there is just something different about handing over dollar bills versus a two second swipe.

Build an emergency fund

If you’re over eighteen, you are probably familiar with Murphy’s Law. For those that are not, Wikipedia defines Murphy’s Law as, “Anything that can go wrong, will go wrong." Now we obviously want to stay positive but we also want to be smart with our money while being prepared. Having a small amount in our savings account can help when cars break, we have to go the ER, or we have any other unforeseen emergency occur. Keeping in mind, we are talking about an emergency here. Your daughter’s 10th birthday, a random girls night out or something like Christmas is NOT an emergency. Those are events we would plan for in our budget and we do not want to take money for items like that from our emergency fund.

How much should you have in this fund? For most people, $1,000 will be sufficient if you are currently getting yourself out of debt. This will cover a car repair, an ER visit, or Fido suddenly fallen ill. If you are already debt free, a good emergency fund would be about 3-6 months of living expenses in your savings or money market account. This money needs to be in an account that is easily accessible and has no penalty for taking the money out. Please note that this is for emergencies only. This is NOT an investment account.

Start paying off your debts, smallest one first.

If you are looking to get out of debt, you will want to list your debts from smallest (at the top of the page) to the largest (at the bottom of the page), regardless of interest rate. We want to begin paying off the smallest first because we want to gain momentum and small wins. Also, once you have the little ones knocked out, you can make larger payments on the larger debts, decreasing the amount of time it will take you to pay off those debts. If you have several debts, you may want to have your list of debts out while you are working on your budget as the two can be done simultaneously.

Do NOT add any more debt.

Once you have your plan in place and you are working your budget, don’t add any more debt! I know this sounds like common sense, but it happens. A lot. One of the things about debt is that it has to do with changing our behaviors. Now, if we are paying off debt yet charging up more debt, we will be in this cycle for the rest of our lives. The behavior hasn’t changed. What can happen is you may end up back in debt or never even make it to becoming debt free.

As the old adage goes, you cannot get yourself out of a hole if you keep digging deeper. If credit card debt is your nemesis, cut up the credit cards. I did this and framed the cut up pieces, hanging it on my wall to remind me each day of my goal. If you are battling student loans, stop borrowing! If you can graduate without taking any MORE student loan debt, then that is a success! If you like to purchase cars, motorized toys, etc., wait until you have paid off your debt and pay cash for those items. You can more than likely negotiate a better deal paying cash in full as well!

Increase your income.

What people sometimes find when they do a budget for the very first time is that they are spending more than they are making. That is not necessary a debt problem, it could very well be an income problem. Just be sure that you are not overspending in places that are more wants than needs. If you indeed DO have an income problem, how do you fix that?

There are a few ways to do this.

This simplest way is to get a second job. Now this may not be a feasible option for some people if they have other family obligations, but something as simple as delivering pizzas each month can easily bring you about $1,500 a month or so. Many people drive for rideshare programs or delivery services like Instacart or Postmates to bring up their income. That could turn your problem around instantly. You can also begin job hunting and find a job that pays more, offers additional overtime or has increased benefits you don’t have to pay out of pocket for. This may be a better option if you are already making a decent amount of money.

Lastly, many people find they have a job rather than a career. If this is the case, some additional education and training may be needed. You don’t want to add anymore to your debt, but there are ways you can get training without incurring a large bill for it. Look for companies that offer tuition reimbursement. Not only do these companies value their employees, but often they offer internal promotions as well. Once you have your degree, you can apply for a position in the same company utilizing that degree you just earned. You can also look for companies that provide programs with on the job training or apprenticeships. All you’ll want to do is spend a little time researching.

Whether you decide to take on another job, like moonlighting for Uber or Instacart, begin job hunting or improve your skillset and change careers, you can increase your income and tackle this debt once and for all.