If you’re drowning in debt, you’re not alone. A 2018 Student Loan Hero survey found almost 40% of millennials say debt is their No. 1 source of financial stress. And two-thirds of millennials never learn how to tackle their debt.
Debt stress not only cripples your finances, but also your health. Stress can lead to chronic pain and illness. Before your stress becomes too much to handle, get ahold of your finances and go debt-free.
Your 7-step guide to becoming debt-free
There are steps you can take to pay down your major financial obligations and start to live debt-free.
Create (and update) your budget
Not having a budget — or not following one — might be your biggest financial downfall. Having a budget tailored to your income, bills and needs is one of the best ways to keep your money on track.
Start by documenting your take-home pay and your necessary bills. This includes mortgage payments, electricity, car loans, insurance and anything that you need to pay on a monthly basis. You’ll also add spots for food and gas. See how much you’ve spent on both in the past three months and add those amounts to your budget.
Try to limit your food costs to only what you need, not what you want. Your restaurant line item should be very small.
Start paying your outstanding bills
Make sure your budget includes loans and credit card bills. Try to include how much interest you’re paying on a monthly basis. When you see how much interest adds up every month, you’ll feel motivated to pay your outstanding bills off sooner.
Payment history is the most important factor in your credit score. Making late payments — or no payments at all — can crush your credit. Start to pay anything that you’ve put off, such as student loans, a car payment or even credit cards. Try to start with making the minimum payment every month to get yourself on a solid payment schedule.
The longer you make on-time payments, the higher your credit score will rise. Stay on track and check your credit score often to watch for improvements. Remember: Checking doesn’t hurt your score.
Consolidate and refinance where possible
One way to get a handle on many outstanding loans is to combine them. If you have many student loan payments, you might want to consider consolidating or refinancing them. Having one streamlined payment can keep you organized and on track to pay every month. It can be difficult to keep track of many different loans.
If you have a mountain of credit card debt, consider taking out a personal loan to pay it off. You might qualify for a lower interest rate for a personal loan than what you pay in credit card interest. Keep in mind that it’s not for everyone, so weigh the pros and cons of credit card consolidation before signing up for a personal loan.
Ditch things weighing you down
It can be hard to make major life changes when you’re shifting your mindset on finances. Getting rid of financial burdens can come in many different forms.
- Selling your car. If you own yours, selling your car and buying a less expensive one — or not buying another one at all — can give you some much-needed cash. If you can live without your car, consider selling it to pay down debt.
- Moving out. Whether you move in with your parents to save on paying rent or you find a roommate to cut costs, re-evaluate your living situation. If you own your home, this also includes downsizing to a more economically affordable home.
- Paying off big debt. If you get a big tax return or a bonus at work, put that money into paying off major debt burdens. Then you can tackle your other debt or build up savings.
- Giving up your wants. Are you paying for things that aren’t as important as others, including cable TV or subscription services? If you don’t use them often or they don’t spark joy, it might be time to get rid of them.
While not every lender or servicer will budge, the first step to getting a lower bill is to simply ask.
Start with car insurance or your internet bill. All you’ll really need for both is time. Find competitors that offer better rates than what you’re paying now. Call your providers to see if they’ll match the promotional offer. Ask if they have any other deals for which you might qualify. If your lenders don’t budge, it’s time to switch to a company where you’ll pay less.
You can also try this with your credit card lender. Call to ask about what it can do to help you pay your outstanding balance down faster. It might help you lower your interest rate or move it with a balance transfer.
Increase your pay
Limiting your budget is an important step to getting out of debt. But if you aren’t earning enough money, you might stay in debt longer than others. Find ways to earn more money.
- Ask for a salary increase. This can be overwhelmingly difficult if you aren’t sure how to go about it. But asking for more money is important, especially if you feel undervalued and underpaid.
- Get a side hustle. If you’re struggling to earn more money in your day job, start working a side hustle doing something you love. Earning money after-hours is a great way to work on something you’re passionate about while also bringing in extra income to pay off your debt.
Save for everything
As your debt slowly goes down — or completely away — don’t throw away your newly pocketed cash. You don’t want to build up that debt again.
You might’ve struggled to save money while you were paying off debt. And if you haven’t started already, you should now. There are a couple of things for which you’ll want to stash money.
The last thing you need is to go into debt due to unforeseen circumstances. Start building your emergency fund. It should be around three to six months’ worth of expenses, which varies depending on your income and budget.
Try to hit $500 or $1,000 as soon as you can, and continue to build from there.
Saving for retirement can seem like the last thing on your mind, especially if it feels so far away. But running out of money is a real thing that could happen in your later years. To avoid that, you’ll want to save for retirement as early and as often as possible. This can be through a work-sponsored 401(k) plan or an IRA.
Are you working to become debt-free?
Debt can be all-consuming and cripple your finances. But you don’t have to suffer through it anymore. Try not to rush out of debt. Instead, make a concerted, manageable plan to get out — and stay out — of debt forever.
Interested in a personal loan?Here are the top personal loan lenders of 2019!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.
†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at reviews.lendingclub.com
**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|5.74% – 16.99%1||$5,000 - $100,000|
|7.54% – 35.99%||$1,000 - $50,000|
|7.99% – 35.89%*||$1,000 - $50,000|
|5.99% – 24.99%2||$5,000 - $35,000|
|5.99% – 29.99%3||$7,500 - $40,000|
|6.79% – 20.89%4||$5,000 - $50,000|
|9.99% – 35.99%5||$2,000 - $25,000|
|6.95% – 35.89%6||$1,000 - $40,000|
|6.99% – 18.24%7||$5,000 - $75,000|
|9.95% – 35.99%8||$2,000 - $35,000|