How to Get Out of Debt: Six Steps You Can Take Now

Bernadette Joy never expected to run into $ 300,000 in debt.

During her twenties, she had participated in the usual vices that came with New York life, such as shopping on Fifth Avenue and buying extra drinks, but she had not incurred any debt in the process.

But Joy and her husband, who were in their thirties in Charlotte, North Carolina, owed $ 72,000 in student loans from their MBA, $ 180,000 on their home mortgage, and $ 57,000 on their rental home mortgage. “I was so ashamed of money. On the outside it looked like I had my shit together, then I’d slowly die on the inside, “she says.

After some personal lows (her first step was “screaming out my eyeballs,” she says) and self-reflection, Joy, now 35, recovered and looked at her total debt.

Using a strategy later defined by the acronym “CRUSH”, Joy found additional sources of income (e.g. a self-directed debt settlement plan that paid off all $ 300,000 in debt within three years. Joy now runs a company, Crush Your Money Goals, by helping others get rid of debt through courses and social responsibility.

Joy’s story is an extreme example, but her specific advice and refreshing transparency regarding money provide valuable insights into how creative debt management can be.

When you find yourself in a mountain of debt, you are not alone. According to a 2018 study by Northwestern Mutual, the average American carries about $ 38,000 in personal debt (excluding mortgages). And, especially since the beginning of the COVID-19 pandemic, debt has been a major source of concern for Americans.

We asked Joy and two other debt management experts for her advice to people who are pursuing their own debt-free future.

Steps to Combat Debt

1. Build an emergency fund
2. Change your mindset
3. Work backwards
4. Choose a strategy
5. Spend on what you love, minimize the rest
6. Find your community

1. Build an emergency fund

The first step to paying off debt is getting yourself on a more solid financial footing.

Without emergency savings reserves, you will be in arrears with debt repayment if unexpected expenses arise.

Every financial professional seems to have a different opinion about how much should be saved in an emergency fund. Joy advises people starting from scratch to save a month on the expenses before they start paying off their debts. “I consider it a severance payment for me. I know I have 30 days to clear my mind, ”she says.

One helpful exercise is figuring out what you consider to be financial distress, says Kimberly Zimmerman Rand, director of Boston-based financial advisory firm Dragonfly Financial Solutions LLC. For one, it could be a breakdown on the way to work; on the other hand, it could be an allergy flare-up that brings her to the emergency room. “Once you identify this 911, assign it a dollar amount. I recommend that this be the basic level of savings before aggressively paying off debt. “

2. Change your mindset

Next, you need to be honest about how you got into debt.

To expect a drastic change in spending habits, you must first change your relationship with spending. Jackie Beck, debt expert and creator of Jackie Beck’s Pay Off Debt money app, suggests defining debt as a problem you want to solve, rather than a way to finance your life.

“As a society of borrowers, we are so used to meeting our needs and desires with debt that we can easily see it as a solution,” says Beck. “But if you want to be debt free, it helps to realize that debt is literally costing you money in interest and time in your future. You work to make money, to pay for what you’ve already spent. To reverse this trend, you need to stop borrowing and just spend money you already have. “

3. Work backwards

Joy calls this strategy “reverse engineering your life goals”. Look at the total amount you owe and find out how and when you would like it to be paid off. It won’t just happen without a good plan. By looking at the how and when you can see how aggressively you need to save and make money.

For example, if you and a spouse were to pay off $ 20,000 in debt over two years, you would have to siphon off $ 833.33 per month for 24 months. Is that an amount that can realistically be budgeted for debt settlement? These are the questions you need to ask yourself in order to find the balance between challenging yourself and upsetting yourself.

4. Choose a strategy

How do you go about paying off your debt? Rand suggests choosing between two common strategies: the avalanche and the snowball method. The avalanche method requires that the debt with the highest interest rate be tackled first and only the minimum amount paid for all other debts. Then, when that debt is paid off, focus on the card or loan with the next highest interest rate. Mathematically, this method will save you the most money in the long run.

However, the snowball method is convincing due to its psychological value. It requires withdrawing the smallest balance first for a quicker profit. Then you take the payment you made on that debt and transfer it to the debt with the next highest balance. “People I work with really reacted to this sense of achievement,” says Rand.

Regardless of your strategy, discipline and persistence are the keys to being successful in paying off your debts.

5. Spend on what you love, minimize the rest

If your budget has some leeway, it is useful to save some cash for hobbies, treats, and vices. Otherwise, the path to debt free will feel more like a drudgery.

Joy found that once she was able to determine exactly what she loved to spend money on, it didn’t feel like a big sacrifice to limit herself to other categories. “What I don’t like about debt-free rhetoric is, ‘All you have to do is eat rice and beans and cut away whatever you love. Don’t have fun and never see your boyfriend. ‘ I am not about it. You will burn out quickly. I tell people to balance their resources – money, time and energy. There is no point having tons of money if you don’t have time to enjoy it and you are exhausted. ”

6. Find your community

Joy attributes much of her own monetary success to virtual connections and resources. “Everyone thinks you have to go to a financial advisor, but you can go to Instagram,” she says.

The financial industry has historically been a male dominated industry, so the Instagram personal finance community is a ray of hope that provides women with a platform to share personal stories, take community responsibility, and provide advice free of inaccessible jargon . Joy names a few different sources of inspiration, like Amanda Williams, who paid out $ 133,763 in 43 months; Clever Girl Finance, a series of books and e-courses devoted to financial empowerment; and Chris from @ the.everyday.millennial who hands out daily personal finance tips.

It is important to only follow credible sources as not everyone with a personal finance platform will search for your interests. But whether you’re paying off $ 3,000 or $ 300,000 in debt, finding people who can relate to your situation can make a world of difference in your own debt management.