Although you are obligated to repay your debts, you don’t have to let them drag you — or your financial future — down.
However, before you can even take your first steps toward financial freedom, you’ll need a roadmap to get there. A “get out of debt plan,” if you will.
The good news is getting rid of debt is actually a pretty straightforward game of math and compound interest. And once you set a course of action, you’ll be empowered to move forward and get out of debt faster.
If you’re ready to make the change and become debt-free, here’s how to get started.
1. Mentally prepare for your get out of debt plan
Before you even create a get out of debt plan, you have to first adjust your mindset. And that involves taking the emotion out of your finances.
Debt can be a major source of stress, shame, and feelings of failure. So when you’re facing debt, it can feel like an insurmountable obstacle. You might think you’ll never get free of debt. Or, it’s too far in the future to even worry about.
It’s ok and even normal to feel those things. But don’t let emotions hold you back from taking necessary steps to tackle your debts.
No matter how dire your finances feel, there is a way out. And, you’re capable of creating and following that path to financial freedom.
Remember, you are in control of your debts — not the other way around. So before you commence your get out of debt plan, fuel up with the determination to change.
Essentially, if you’re changing your money behaviors then you’re also changing how you view yourself and your finances. All of which is crucial for becoming debt-free.
2. Research what your debts look like
With your new get-out-of-debt mindset now in place, you’ll be able to stomach a full assessment of your debts.
If you’re fuzzy on some key details about your debts, you’re not the only one. Many borrowers have no idea who is servicing their loans, what their interest rates are, or even when their pay-off dates will be.
This can be especially true of student loan debt. For example, you may have several student loans taken out at different times and serviced by different lenders.
Getting your free annual credit report is a great place to start. This will list out all of the debts you currently carry. Including the balance, servicer, and account status (such as current, past due, or delinquent).
With this list of debts, you can start collecting the following key information for each of your debt or credit accounts:
- Your balance, or how much you owe
- Current status of your account
- Interest rate for a specific debt
- Monthly minimum payment amount
- Payoff date
- Contact and login credentials for your account
The good news is you can easily log into your online accounts with most creditors.
Or, call them to get any additional information not listed on your credit report. Then, record these details in a list, spreadsheet, or format that works best for you.
If it’s intimidating to do this all at once, start small by checking out just a couple of accounts a day until you’re done.
3. Check the minimum you owe each month
Now that you have your debts listed out, you can figure out what you are obligated to pay each month.
Essentially it’s the amount you must pay to your creditors to keep your accounts in good standing. And avoid ugly consequences like late fees or default.
The total amount is what you get when you add up the minimum payments for each debt. Hopefully, this is an amount that you can afford each month.
If you’re having trouble keeping up with minimum payments, however, that’s an issue you must address ASAP. And if you’re already to the point of default on some of your debts and can’t afford to catch up, it might be time to contact a bankruptcy lawyer and consider your options.
For student debts, however, keep in mind that these can’t be discharged in bankruptcy. But you can start the process to get student loans out of default.
4. Map out out your monthly expenses
By paying the minimum amounts each month, you’ll stay current on debts. But, you won’t get ahead.
If you want to pay off your debts faster and be debt-free before all of your pay-off dates, that will require paying more than just the minimums.
But to know if you can afford to pay extra on your debts, you’ll need to know what your monthly expenses are. A budget or spending plan will help you account for your money. And keep you accountable for spending it on things that really matter.
Review account statements from your bank and other service providers to see what you are paying for living expenses each month. Add up what you pay for rent or mortgage, bills, and debt payments. Make sure it includes other necessities like childcare, tuition, and groceries.
5. Find how much extra you can afford to pay
Once you have this amount, see how much of a buffer you have left each month (your net income minus your monthly expenses).
This is your disposable income, the cash that’s left over each paycheck or month after you cover all of your necessary expenses.
It’s tempting to just assume you can put all of your disposable income towards extra debt payments. But you want to make sure you’re balancing debt prepayments with other financial goals and expenses as well.
For instance, you might want to save some of your disposable income into an emergency fund. Or, create a “fun money” fund so you don’t end up feeling deprived each month.
On the other hand, the more money you can put towards your debts, the sooner you can be free of them.
When you weigh all of these considerations, you’ll get a better sense of the actual dollar amount of extra debt payments you can potentially make each month.
6. Prioritize your debts
Now that you know how much extra you can afford to pay each month, you can decide the best way to apply extra payments towards your debts.
Remember, you’ll always save the most money on interest by putting extra payments towards high-interest debts first.
Unsecured debts like credit cards, personal loans, and lines of credit will typically have higher interest rates, while secured debt like home loans or car loans tend to have lower rates.
Although student loans are unsecured, they usually (but not always) will have lower interest rates.
Put your debts in order from the highest interest rate to the lowest. Then commit to putting all of the money you’ve earmarked for extra debt payments to lowering the debt at the top of the list with the highest rate.
Rinse and repeat.
7. Get your new payoff date
When you pay extra toward debts, you’ll ultimately pay off one account and free up that total amount you were spending on the monthly payment.
For instance, if you have a $200 payment and are paying $300 extra, once that debt is gone you can add $500 in extra payments to your next debt.
Applying these extra funds toward repaying debts is commonly called a debt snowball or debt avalanche because you keep rolling the freed-up funds into the next debt until they’re all paid off.
You can use the calculator below to get an idea of how much faster you can get rid of your debt if you are paying extra each month.
Or, if you have a goal to be debt-free in a certain number of years, you can also see how much extra you’d have to pay each month to achieve that.
Another tool, Unbury.me, can help you see similar information for all of your debts at once for an overview of all of your debts at once.
Using these tools, you can figure out your new pay-off date and when you’ll be completely debt-free. Then, mark it on your calendar and refer to it as you continue on your journey towards financial freedom.
Keep trying new debt pay-off strategies
With these seven steps, you have a get out of debt plan — a roadmap you can follow to get free of debt and save hundreds (and likely thousands) of dollars in interest.
But don’t stop here! Your getting out of debt plan is just the beginning. In addition to paying extra each month, there are other strategies you can employ to get rid of debt faster.
For instance, you might look into getting a side hustle going which can help you generate more money towards paying off debts.
Or, perhaps you’re interested in refinancing or consolidating debts to a lower interest rate so more of your money goes toward paying down your principal.
Consider improving your spending habits and living more frugally. Both can free up more cash flow for debt repayments.
Also, surround yourself with family, friends, and social circles who have successfully managed their debts. And don’t be afraid to ask them about how they did it or cheer each other on.
All of these actions can help empower you to make some big financial changes. At the end of the day, keep learning about finances, debt, and managing money. Find your grit, and use it to buckle down to make positive financial changes.
Remember, you’re in charge of your finances, for better or worse. You have the power to create financial security and get out of your debt cycle permanently.
Interested in refinancing student loans?Here are the top 5 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
ANNUAL PERCENTAGE RATE (“APR”)
There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.
For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
ELIGIBILITY & ELIGIBLE LOANS
Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).
Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.
All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions.
For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.
The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.
The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.
POSTPONING OR REDUCING PAYMENTS
After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.
We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.
We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.
If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of March 4, 2020 and is subject to change.
2 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Splash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member.
The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website.
You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 1, 2020.
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan).
Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.21% APR (with Auto Pay) to 8.77% APR (with Auto Pay). Variable rate loan rates range from 3.21% APR (with Auto Pay) to 8.72% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of May 8, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 5/08/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.8100000000000002% effective April 10, 2020.
|1.99% – 6.65%1||Undergrad & Graduate|
|1.99% – 7.10%2||Undergrad & Graduate|
|3.21% – 6.67%3||Undergrad & Graduate|
|3.21% – 8.72%4||Undergrad & Graduate|
|3.22% – 6.05%5||Undergrad & Graduate|