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Debt can seem so innocent and insignificant at first. You use your credit card here and there for a variety of reasons: to book a trip, to buy a present. All with the intention of paying those purchases off immediately. But then…life gets in the way. An unexpected medical bill. A dreaded letter from the IRS. A staggering rise in insurance costs. Suddenly it seems like you’re practically swimming in debt with little hope of getting your head above water.

But luckily there is hope. Following, are some strategies to help you get out of debt–no matter how big of a mountain you have to climb. Erasing that black cloud over your head can, in turn, calm your anxieties about the future and help you start living your life.

1) Calculate your debt and interest rates and form a game plan

You may think you have an idea of what you owe in your head, but writing it down on paper makes it real. It will also give you an idea of how long it may take you to tackle it. I recommend using a spreadsheet to list each debt, along with its interest and minimum payment. This will help you realize the toll your debt takes on your bank account each month.

Also, don’t be scared by the number you see. Since you’ve made a commitment to get rid of it, it will only get smaller as time goes on.

It’s a good idea to list your debts in order of how you will pay them off. I recommend tackling the one with the highest interest rate first, and paying the minimums on everything else until that one is eliminated. However, if your highest interest rate payment is a particularly large number, you may opt to receive a quicker confidence boost by initially paying down the one with the smallest balance so you can cross it off the list.

Once you go through the next few steps and figure out how much you’ll be putting toward each debt, consider putting your payments auto-pay so you don’t have to worry about missing any of them one month.

2) Reduce interest rates if you can

Paying down debt is difficult when your interest rates are sky-high. It may feel as if you’ll never make a dent in the principal balance because of the amount you’re throwing away to interest. The good news is there are a few things you can do to change this situation.

  • Search credit card sites for 0% balance transfer offers and calculate whether that might be a viable option. Pay attention to balance transfer fees, however, which are usually around 5%. Also, note how long the 0% offer will last and how much the interest rate will rise after that time period.
  • Negotiate your interest down with the credit card company. This is a good option if you’re not eligible for a 0% balance transfer or decide it doesn’t make sense for you.
  • Consider refinancing your mortgage and/or student loan. Refinancing helps lower your interest rates, and in turn, usually makes your monthly payments lower. But be prepared to pay closing costs if you’re refinancing your mortgage. Regarding student loans, if you’re struggling to make your payment each month, focus on not defaulting instead of refinancing. Your loan provider can work with you to come up with a plan.

3) Tally up all your expenses

Go through your bank statement and write out every bill and monthly expense. You may have to average some of them, but that’s okay. This includes all your utility bills, mortgage, car payment, home, car and life insurance, child support, daycare, student loans, cell phone, gym membership, credit card payment, prescriptions, and other outstanding loan and credit card payments. It’s best to write these out in a spreadsheet so you can have everything in front of you.

Record other expenses you encounter throughout the year (but not monthly) and divide them by 12. This includes things like property taxes, car repairs and oil changes, vet bills, glasses or contacts, tax preparation fees, medical expenses, charitable giving, vacation expenses also camps, and lessons for your children if you have them.

Now go through your bank statement again and add up about how much you spend in each category per month. This includes everything from groceries, gas, restaurants, and clothing, to coffee shops, parking fees, hair salon fees, and gifts for others. Analyze these amounts. Are you happy with how much you’re spending in each area? If not, set a budget or limit of what you believe is reasonable and attainable.

4) Write out your total monthly income after taxes and subtract all of the above expenses from it, including what you budgeted in each category

How does your bank account look now? Are you spending more than you make or is there a considerable amount leftover to put toward your debt?

Some financial experts believe in living by a 50/30/20 rule—reserving 50% of your income for essentials like housing and food, 30% for lifestyle choices (shopping, gym, entertainment, travel, gifts, cable, health, etc.), and 20% toward “financial priorities” such as debt payments, retirement contributions, and savings.

Note: Before putting 20% of your income toward debt, make sure you have an easy-access emergency fund savings account that contains at least one to three months of your monthly income. That way, if other unexpected expenses come up, you won’t be going further into debt.

5) Track your expenses and check your bank account frequently to see if you’re staying on track with your budget

This is the hardest part. While you can do this with a spreadsheet on your own, if you prefer to use a website that does it all for you, I recommend Mint.com. Once you enter your credit and/or debit card information, Mint tracks all of your expenses in various categories and sends you alerts if you have overspent in certain areas.

6) Consider a cash plan

If you constantly struggle to stay on budget in certain areas, consider withdrawing the amount you want to limit yourself to, putting it in an envelope, and only spending that amount. Having a limited amount of cash will usually force you to budget much more carefully since when it’s gone—it’s gone.

7) Search for ways to earn more money to put toward your debt

In Laura Shin’s Forbes piece “The Ultimate Guide to Getting Out of Debt,” she noted one of the best she emerged from debt was by earning more money.

“While cutting costs might free up a few hundred every month, a solid side gig could give you an extra $1,000 or more to put toward your debt,” she wrote.

Another option is to negotiate a raise. Don’t mention the request stems from wanting to pay off your debt, however. Instead, base your argument based on your performance at work. If you’re successful, put all those extra earnings toward your debt. Put any gifts or bonuses to work as well. If you receive a large sum, put the vast majority (if not all of it) toward your debt.

8) Don’t give up!

Sticking to a budget in order to pay down debt is hard, but you’ll reap the rewards if your end goal is met. Like a diet, you have to be dedicated in order to see results.

Also, consider celebrating every time you reach a debt repayment milestone. Treating yourself will give you more motivation to persevere and achieve your goals. Good luck and remember: getting out of debt may be hard work, but the reward, in the end, will be more than worth the pain.

Author Ron L. Brown, CFP®

Ron is a CERTIFIED FINANCIAL PLANNER™ and President of R.L. Brown Wealth Management. He specializes in retirement, estate, and business planning for professionals and entrepreneurs. Ron assists his clients with creating a financial plan to ensure they are able to live their ideal lifestyle during retirement and leave a strong legacy for their family. Ron has been featured in The Wall Street Journal, US News, Yahoo Finance, Investopedia, and numerous other high profile financial publications.

More posts by Ron L. Brown, CFP®
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