Managing Money Write Your Own Out-of-Debt Success Story

by Megan Nye | July 19, 2019

Is working to pay down debt a top priority for you? You’re hardly alone.

According to Experian's eighth annual State of Credit survey, four out of five Americans currently have some form of debt. This study finds that adults may carry, on average, roughly $200,000 in mortgage debt, $6,000 in credit card debt and $34,000 in student loan debt.

Those are steep numbers, to be sure, but no need to panic. It is possible to be the master of your money with simple, effective strategies to help you conquer debt, save more and propel you toward your financial goals.

Creating a budget is not optional

“There is no point in working a debt repayment strategy if you do not start with the budget,” asserts Adam Beaty, a certified financial planner at Bullogic Wealth Management. “You must not only fix the symptom — high debt — but tackle the actual problem: poor cash flow management.”

Plenty of people are intimidated by the idea of creating a budget, but you can shortcut the process. Embrace digital tools, a simple spreadsheet or even a notebook for budgeting. Choose a method that allows you to track your bills’ due dates. After all, missing a deadline is a surefire way to ding your credit — and possibly accumulate even more debt.

As you work through this process, give yourself a thorough financial checkup to ensure that your budget not only covers your day-to-day essentials but also moves you closer to achieving your short- and long-term financial goals.

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There is no point in working a debt repayment strategy if you do not start with the budget.
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Reduce your interest rate to pay down debt faster

Reducing your interest rate can be an effective way to get you out of debt faster.

One approach to consider is moving your outstanding debt to a lower-interest line of credit. You can do this by consolidating multiple loans into a single loan, refinancing with more favorable loan terms or transferring your existing card balance to a lower-interest card.

This approach can be effective for high-interest credit card debt or student loans — though experts caution that you’ll need a solid credit history to get the rates that will make it worth your while. Borrowers with below-average credit or unstable income might not qualify at all.

Also, keep in mind that consolidation isn’t a cure-all: If those who consolidate don’t also change their spending habits, they may find themselves spiraling further into debt.

Adopt an accelerated debt repayment strategy

Sure, you could keep paying just your required minimum monthly payments toward debt. But that approach can keep you trapped in debt for years while you’re paying huge sums toward interest. If you want to save money and become debt-free faster, it’s time to start putting some extra money toward your balances.

The "debt avalanche" — wherein you rank your debts and tackle those with higher interest rates first — can be an extremely effective strategy for saving interest costs and minimizing the time you spend in debt. It’s the method that Heather Taylor, a 31-year-old communications professional from Calabasas, CA, used to tackle her debt. Tired of the massive student loans hanging over her head, Taylor implemented the debt avalanche method and knocked out $43,000 of high-interest private student loans.

Beaty also recommends the "debt snowball" — where you choose one particular debt, say, a credit card balance, to focus all your extra resources on in order to get it off your balance sheet quicker — method to his clients. This strategy delivers a constant boost of motivation as you whittle down your debt. “We choose the debt snowball because it guarantees little wins and that is a huge driver of success,” Beaty says.

So, how do you know what strategy to go with? Ultimately, the right debt repayment strategy for you is the one that you’re willing to stick with.

woman in a denim shirt writes in a notebook with her laptop and her cell phone nearby on a wooden desk

6 tips from the experts

Of course, when it comes to really tackling debt, it can help to hear success stories from financial experts and others about how they made a move toward a debt-free life.

  1. Eliminating debt requires a conscious effort. Rob Drury, a veteran financial planner and executive director of the Association of Christian Financial Advisors, insists that you need to plan for debt repayment. “This should be a dedicated monthly budgeted expense,” he says, “not something one does when they feel they have a little cash to spare.”

     

  2. Real financial changes take time. Danny Kofke, author of The Wealthy Teacher: Lessons for Prospering on a School Teacher’s Salary, cautions against attempting to fix every area of your finances simultaneously: “This leads to failure. It’s like losing weight. One needs to focus on smaller stepping stones on the way to achieving the bigger goal.”

     

  3. More sacrifice equals faster results. Every little bit helps, but Taylor notes that the more you’re willing to sacrifice — a streaming media subscription service, for example, and even a car in her case — the more cash you’ll free up for debt repayment. Remember, tightening up your budget or trying a spending fast is just temporary while you’re working on the larger debt picture.

     

  4. Knowledge is power. Katherine L. Garcia, a 29-year-old marketing professional, paid off $55,000 in student loan and credit card debt while supporting her mother financially. She credits much of her success to educating herself — signing up for an online debt reduction course, listening to money management podcasts and taking personal finance classes at her local college.

     

  5. Look for ways to boost your bottom line. Get creative in raising extra money or increasing your income. Taylor, for instance, sped up her debt repayment by dedicating her free time to working side jobs for extra income.

     

  6. Don’t treat your debt like a dirty secret. Garcia shares that she was motivated to stay on track (and accountable) by online groups filled with other people working toward financial success. And Taylor was surprised to find that sharing her story with family and friends empowered her to succeed. Consider enlisting a professional — a financial advisor or a certified credit counselor — to help create a debt strategy. A credit counselor will examine your finances, help you create a livable budget, recommend strategies for beating debt and even work directly with your creditors.

A little planning, and putting a strategy into practice that's right for you, can help put you on your way to becoming your own zero-debt success story.

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Remember, tightening up your budget or trying a spending fast is just temporary while you’re working on the larger debt picture.
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Debt Budgeting
Megan Nye

is a personal finance freelance writer who's passionate about sharing strategies for beating debt and reaching your financial dreams. Her writing has been published by Business Insider, U.S. News & World Report and Credit Karma.

The content reflects the view of the author of the article and does not necessarily reflect the views of Citi or its employees, and we do not guarantee the accuracy or completeness of the information presented in the article.