First Steps for Getting Out of Debt

Between credit card payments and student loans, debt is stressful. Besides paying off your debt, you still have the day-to-day living expenses. This can stretch a paycheck and add even more stress. But there is a solution. By establishing and analyzing debt, you take the first steps to paying down your debt.

What debt is hanging over your head? Make a list of all your debt. You especially want to establish your interest debt. This would include student loans and a car loan. If you're not paying off your credit card bills every month, it would consist of any credit card debt as well.

​Consider also​: How to Negotiate a Credit Card Payoff

Only paying the minimum on your credit card bills costs money. If you have a good credit score, you're probably paying around 18.98 percent in credit card interest. This interest adds up, and it can inflate the amount you end up paying back.

For example, if your credit card balance is $3,000 and your interest rate is 18.98 percent, you will probably be required to make a four percent minimum payment. If you only made the minimum payment, it would take you almost 10 years to pay off your credit card. This equates to $4,823 total payback.

So, when you're making a list of debt, make sure you write the total owed, and the interest rate charged. Then, use a credit card calculator to determine your total debt repayment if you make minimum payments.

Take the first step toward financial freedom by determining your debt and what you are paying for that debt.

If you need debt relief, you might want to explore credit counseling. A credit counselor will guide you and help develop a plan to pay down debt. They may suggest a debt consolidation loan with a lower interest rate than your credit cards. This might make your monthly payments lower.

In February 2022, a personal loan interest rate was as low as 4.98 percent. Of course, interest rates ultimately are based on your credit report. But by qualifying for a personal loan with a lower interest rate, you would probably have a lower monthly payment. This may allow you to make extra payments toward the debt.

Your financial situation may dictate reaching out to credit card companies to reach a debt settlement. There are also settlement companies that can aid you in negotiating with credit card companies. Although this is a viable option, it could affect your credit score.

​Consider also​: How to Ask for Debt Forgiveness

You should have a savings account for that rainy day. But check to see how much interest your bank account is earning. In February 2022, Chase savings account interest was 0.01 percent, while Comenity Direct was 0.60 percent. Both are low compared to credit card interest.

​Consider also:​ Debt vs. Liability

Once you have established your interest debt and looked at your bank account earnings, write down your ongoing expenses. This would include a gym membership, rent, food, car insurance and other expenses. Decide what you must live with and what you can live without.

Do you need that daily trip to the coffee shop? You could probably take that $100 you're spending on coffee a month and apply this extra money toward your credit card payment. Are you using your gym membership? Running is a less expensive option.

Consider taking a second job. The added income would help you eliminate debt faster.

​Consider also:​ Get Out of Debt Hack: Pay More Than the Minimum

Take the first step toward financial freedom by determining your debt and what you are paying for that debt. Then, it will allow you to plan and use techniques like the snowball method to alleviate your debt.