What if you want to take control of your debt and figure out how to pay it off? Books, websites, and even personal finance podcasts can help, but many people are turning to debt relief services for assistance. Apart from the catchy radio commercials that promise to get debt collectors off your back, what exactly does debt relief entail?

Debt relief services can be a viable solution for some, but there may be a better option for your situation.

What Is a Debt Relief Service?

A debt relief service is a third-party organization that works with you and your lenders to reorganize or restructure your debt so you can satisfy your repayment obligations.

These are typically for-profit companies. They generally charge hefty fees for clients to use their services. However, they provide an alternative to bankruptcy, which can sometimes come with much harsher long-term effects.

Types of Debt Relief Services

There are three primary options for debt relief: debt settlement, debt management, and debt consolidation. While they have similar objectives — to help you manage and pay off your debt — they all operate with some slight differences.

Debt settlement

In a debt settlement, you negotiate with your creditors to reduce or eliminate the amount that you owe. This can include balances, interest rates, due dates, and other factors like late fees and over-limit charges. You can work directly with your various creditors to do this or you can use a third-party vendor to negotiate on your behalf.

Pros: Having a third-party negotiate on your behalf makes it more convenient. They handle all communication and payments to your creditors, which is great if you’re not comfortable doing that on your own.

Cons: These providers often charge a monthly fee for their service, and that fee can often be more than you can afford. You might also owe taxes on the canceled debts and your credit might be negatively impacted.

Debt consolidation

With debt consolidation, all of your debts will be combined into one single debt. This is generally accomplished by taking out another loan, usually a personal loan, or transferring your credit card balance to a card with 0% APR. You can do this on your own or through a debt relief company.

Pros: Combining your debts into one payment reduces the number of bills you have to pay. You can also consolidate both secured and unsecured debt, and it might help your credit score in the long run. You can consolidate your debt into one monthly lump sum through personal loans, low-interest loans, or credit card balance transfers.

Cons: If you use a third-party debt consolidation firm, you might have to pay hefty fees. Even though you only have one payment, it might take you longer to pay off this larger balance. In the short-term, it can negatively affect your credit score, and it doesn’t necessarily encourage any behavioral changes that caused the initial debt.

Related: Should You Pay Off Debt or Save Money? Here’s How to Decide

 

 

 

 

 

 

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Debt management

Debt management is an option for working with creditors via a third-party organization to consolidate your unsecured debts, like credit cards or personal loans, into one monthly payment.

Pros: You’ll only have to make one monthly payment at a lower interest rate, and you might be able to pay off your debt faster.

Cons: Not all creditors participate with debt management plans. You’ll need to stay on top of your payment; missing one can forfeit your enrollment, and your credit score will be negatively impacted.

When Should You Use a Debt Relief Service?

If your debt is more than you can handle, getting some relief makes it more manageable. You might wind up paying less in interest or late fees because there’s only one payment to manage.

There’s also the psychological benefit of seeing the balance go down so you feel encouraged to keep making progress. It might free up some money in your budget to apply toward other needs, like your grocery budget or car maintenance.

Not all of your creditors will want to settle your debt. If that’s the case, you’re still obliged to pay the full amount including any interest, late fees, or other charges you might have incurred.

How to Find a Reputable Debt Relief Program

If you’re going to use a debt relief program, it’s important to do your research and pick one that’s reputable, trustworthy, and reliable. You can research sites like TrustPilot or the Better Business Bureau for ratings, reviews, and complaints.

You can also perform a quick Google search with the company’s name to read testimonials and reviews from actual consumers.

Make sure to research things like:

• Does it charge you upfront? According to the Telemarketing Sales Rule_[2], it isn’t allowed to do that.
• If it has advised consumers to stop paying bills. Doing so can put those accounts into collections, further harming your credit score.
• If it promises things that seem too good to be true. It’s good to be optimistic, but not to expect things that aren’t possible.

Make sure you ask lots of questions during your initial assessment. If you don’t get a good feeling about the company, or it exhibits some of the above characteristics, it may not be legit.

Related: 7 Simple Steps to Increase Your Credit Score

Avoid These Debt Relief Options

Even if your debt has become unmanageable, using some of these options can make your financial picture even bleaker.

Borrowing against your home equity. This can compromise the money you’ll get if you need to sell your home and risk foreclosure if you can’t make the payments.

Borrowing against your retirement savings. You risk having to pay taxes on the money if you lose your job and losing extra money in compound interest.

Delaying payment on secured debt to make a payment on an unsecured one. Doing this puts you in a position to lose the collateral on the secured loan. If that collateral is something like a car, you’ve now lost the ability to get to and from work.

Succumbing to pressure from creditors. Don’t give in to what creditors tell you to do. Their job is to get the money owed to them, not to look out for your best interest. Make the payments that you must, and try to work out a deal for the rest.

Avoid borrowing against your future to pay for past mistakes. If you’re still struggling with your debt, there are some debt relief alternatives that can help.

 

 

 

 

 

 

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Alternatives to Debt Relief Programs

If you’ve done your research and you’re still wary of using a debt relief program, there are a few other options to consider.

Credit counseling

Credit counseling is a service provided by nonprofit organizations like the National Foundation for Credit Counseling_[3] to help customers learn to live on a budget, pay down their debts, and improve their overall financial picture. Counselors can also help you organize a debt management plan.

Pros: They’ll help you consolidate your debts, offer a wide range of services including free educational materials, and debt repayment may take less time.

Cons: Credit counseling comes with a fairly high monthly fee. It may be difficult to qualify for their debt management plans depending on the types of debts you have, and your credit cards will be frozen.

Bankruptcy

Unlike the other options, bankruptcy is a legal proceeding that clears all or most of your debts while your creditors and lenders still receive some repayment. You can file either Chapter 7 or Chapter 13 bankruptcy. If you go this route, speak to an attorney before you decide which one to take.

Pros: With bankruptcy, your debts are forgiven and debt collectors can no longer call you to collect on what you owe.

Cons: Not only can it be costly to file bankruptcy, but not all debts can be included. For instance, you typically cannot include student loans in bankruptcy filings.

Bankruptcies stay on your credit report for up to ten years, making it more difficult to obtain other loans and other services like apartment rentals. If you do secure a loan, the interest rates can be substantially higher. And if you file Chapter 7, you can lose your assets, including your house or car.

Negotiate your own debts

Negotiating your own debts means you contact your creditors and lenders and work out a payment arrangement with them. That could mean anything from consolidating balances, lowering interest rates, or offering to pay a lump sum. You can also formulate your own plan to get out of debt using the debt snowball or debt avalanche methods.

Pros: This allows you to take control of your debt situation by creating your own timetable with payment amounts that you can afford. You don’t have to worry about a third party handling your payments or paying it a management fee.

You might be able to maintain a higher credit score, and there will be no marks on your credit report. Because you’re working through this on your own, you’ll still need to address the behaviors that caused the situation in the first place so that you don’t fall back into debt.

Cons: Because you’re doing this on your own, you have no one holding you accountable, making it easier to “cheat” on your plan. As an individual, you might not have some of the authority that a third-party company might have. Therefore, some creditors may be less likely to negotiate with you. It might also take longer, and you’ll still have to remember to make all the different payments each month.

Related: Here’s What People Mean When They Talk About “Good Debt vs. Bad Debt”

Is a Debt Relief Service the Right Choice?

A debt relief program can work, and it may be the right choice depending on your situation, the kinds of debts you have, and if your creditors are willing to negotiate. It also depends on how faithful you stay to your plan. If you’re paying on time every month, not taking on any new debt, and sticking to your budget, then this type of program can be beneficial.

However, lenders don’t have to accept your settlements, and participating in a debt relief program can negatively impact your credit. It might also take you longer to pay off your debt using one of these services, not to mention the high fees many agencies charge.

In some cases, a debt settlement company may encourage you to stop making payments on your debts, which will then show up as delinquent accounts on your credit report.

You have to weigh the pros and cons of using a debt relief program. Remember that if you aren’t comfortable with any of the terms or conditions, there are other ways to get out of debt.

The post What Is a Debt Relief Service? The 3 Types Explained appeared first on DollarSprout.

A recent survey by The Commonwealth Fund showed that 32% of working Americans have outstanding medical debt._[1] What’s more alarming is that 54% of those people with medical debt said they defaulted on it.

If this sounds like your current situation, or it quickly could be, there are steps you can take to reverse the course. You don’t have to let medical debt take control of your life, your finances, and your stress level.

Don’t Ignore Your Medical Bills

Ignoring your medical bills can cause significant stress and have negative financial consequences.

It can hurt your credit score, making it difficult to secure financing for a house or other large purchases. If you neglect your bills long enough, they can get sent to a collections agency, which can lead to daily phone calls from debt collectors. There’s also a chance that unpaid medical bills can lead to lawsuits.

Rather than pretending they don’t exist, a better choice is to become a student of your medical bills. Study them to make sure the information and figures are accurate. Understand the billing process, payment options, and your rights as a patient. The more you know, the better prepared you’ll be to pay off your medical debt.

Related: How to Get Out of Debt: A Step-by-Step Guide

Options For Paying Off Medical Debt

If you have medical bills piling up and are struggling to make payments, know that you have options beyond mailing a check or making an online payment for the full amount. Consider giving a few of these a try before letting your bills go to collections.

Set up a payment plan

Many medical providers allow you to set up interest-free payment plans for your bills. Terms may vary based on how much you owe. For example, San Antonio’s Baptist Health System offers payment terms up to 36 months for balances over $5,000.

If more than one person in your immediate family has medical debt, you may be able to combine those bills into one payment plan. Be sure to read all of the details when setting up your plan. Some may require a cash down payment or other stipulations.

Make sure you understand all of the terms as well.

Ask for a prompt payment discount

Besides payment plans, many medical providers give discounts to patients for paying quickly or on time. According to Todd Christensen, AFCPE®, and Education Manager at Money Fit, doctors are more than willing to reward swift payment.

“Never be reluctant to ask for a discount for paying upfront in full,” Christensen says, “Offices are happy to offer discounts rather than deal with the hassle of dealing with insurance or billing you over the next year.”

Check the bill or talk directly to the provider for prompt payment opportunities. Some providers reserve these types of discounts for self-pay patients with no insurance coverage. According to 2018 data from the Census Bureau, 27.5 million people in America don’t have medical insurance. If you’re eligible, in some cases, paying your bill promptly can lower the total amount by 20%._[2]

In order to qualify for a discount with or without insurance, there is usually a time frame in which the payment must be made. Make sure you know what that time frame is and that you can adhere to it. If you can’t, you will likely lose your discount.

Explore financial assistance options

Another option is to look into financial assistance programs available through your medical care providers. Many hospital systems and other medical professionals have programs designed to help patients struggling to pay medical bills.

There are also state and federal programs that offer free or reduced-cost health care if you qualify. Eligibility requirements vary but can include your place of residency, income, expenses, and other financial factors. The Cleveland Clinic, one of the largest non-profit hospital systems in the country, offers three categories of financial assistance:

• Income-based
• Maternity services
• Catastrophic balance

If you find yourself in a situation where you’re having trouble keeping up with medical bills, call your provider to see what financial assistance programs are available and how to qualify. Medical providers know there are circumstances that make bill repayment difficult. In many instances, financial assistance programs can help.

Related: 25 Programs to Get Free Money from the Government 

Get help from a medical bill advocate

If you’ve exhausted other options or need some extra help, hiring a medical bill advocate is the next logical step. They’ll negotiate with providers on your behalf to get your medical bills lowered.

These advocates are also experts at deciphering medical bills. Your bill may contain errors, or you could be getting overcharged for services provided. An advocate will spot those errors and may be able to get your total bill reduced.

Keep in mind that you will have to pay for the services of a medical billing professional. They may charge an hourly fee or a percentage of the costs they helped recover. Make sure the potential savings you’ll receive is more than an advocate’s fees before hiring someone.

Organizations like Medical Billing Advocates of America and the Alliance of Claims Assistance Professionals can connect you with a reputable medical bill advocate.

Related: Need Help Paying Bills? Here’s What You Can Do to Get Assistance Now

Use credit cards or loans as a last resort

Other options available to pay off medical debt include personal loans and 0% APR credit cards. Only consider these options if you run into a dead-end everywhere else. Personal loans charge interest on your debt, which means you’ll pay more in the long run.

Credit cards with introductory 0% APR help in the short-term but can make it worse if you aren’t able to pay off your balance during the no-interest introductory period. If you don’t pay off your balance or make late payments, you’ll end up paying the regular interest rate and or a higher penalty APR.

Exhaust all other options before you consider using a personal loan or credit card to pay off your medical debt. If you think you’ll have trouble making loan or credit card payments, avoid these options.

What to Do If Your Medical Bills Have Gone to Collections

If you’ve ignored your medical bills because your debt became too much to pay off, your medical bills will likely get sent to a collection agency. While most doctors and hospitals don’t report to credit bureaus, collection agencies do, and that can have a substantial negative impact on your credit score. Here are some things you should do if your medical debt ends up in collections.

Know your rights

Leslie Tayne, Financial Attorney and Founder of Tayne Law Group, P.C., says it’s important to know your rights.

According to Tayne, you typically have 30 days from the receipt of your first collections notice to reach out to the collector and have the debt verified in writing. “By doing so,” she says, “you can see exactly what you owe and the details of the debt, while stopping the collection calls until they return your request.”

Consider using one of the Consumer Financial Protection Bureau’s sample letters when you reach out to the collector.

Negotiate

After you understand your rights, consider negotiating with the collections agency to lower your debt. Here are some steps Tayne says to use when negotiating with a creditor.

Know what you owe. Take time to look over your entire bill to make sure you actually owe what’s asked of you. It’s not uncommon for medical bills to have errors, overcharges, or charges for drugs or procedures that you didn’t receive. Tayne advises consumers to “read the fine print and make sure there aren’t any errors on the bill. Ask if the matter has been submitted to your insurance company and even consider calling the insurance company to see if the bill is even owed.”

Take a realistic look at your financial situation. Be honest with yourself regarding what you owe and what you can pay. Tayne says to ask yourself what you can reasonably afford to contribute to your medical debt each month. “Don’t agree to a number higher than this when speaking to a creditor,” she advises. “You don’t want to put yourself in a financial situation that is worst than the one you are currently facing.”

Call the collector. Now, the real work of negotiating your debt begins. Be prepared to take notes during your call. Write down the date and time of your phone call and the name of the collection agency representative you speak with. Every detail could be significant. Tayne recommends to “let the collector tell you what they are willing to do before you make the first offer if you wish to settle the debt.” If you throw out the first number, you could be giving them an offer for more than they’re willing to settle for.

Having your medical bill debt end up with a collection agency is less than ideal. Do your homework, have a plan, and look for a solution that works for you and the creditor. It may take some work, but it’s worth the time and effort.

Related: 8 Steps to Stop Living Paycheck to Paycheck

The post How to Pay Off Unexpected Medical Debt appeared first on DollarSprout.

Back then I had no desire to pay off my $50,000 student loan or my $4,000 car loan. And when my fiance told me he wanted to pay off his $24,000 student loan, my response was, “Good luck!”

I wanted no part of budgeting, frugal living, or giving up the things that I thought made me happy.

But my now-husband wanted my support and participation, so he tried to get me on board. It didn’t take long before I was seeing things from his perspective. I saw paying off debt as something I needed to do to reach my own goals, and I admired him for his consistency and commitment.

And after two years of hard work and transforming my spending habits, we finished paying back $78,000 of debt; an accomplishment that was only possible because we worked together.

Why Working Together Is Better

You can go fast alone, but you’ll go further together. Being on the same wavelength as your partner can drive you further than you think possible. I initially thought it’d take us five years to pay off our debt; but because my husband and I were working together, we finished in two.

Science also knows the value of being in sync with your partner. The psychology behind teamwork is integral to NASA scientists working to send astronauts to Mars._[1] They know technology is important to get there, but understanding the dynamics of the small team of astronauts is critical to successfully completing a long-term mission.

You may not be trying to get to Mars, but paying off debt is still a long-term mission. Working together will make the journey easier.

6 Ways to Get Your Spouse on Board with Paying Off Debt

Getting out of debt is hard, but it can be even harder when your spouse isn’t working with you. If you want to get your partner on board with paying off debt, there are several ways to approach the conversation to make it productive.

1. Pick the right time to talk.

Choosing the right time to talk will put both of you in the right state of mind to have the most productive conversation. Allison Baggerly, the personality behind Inspired Budget, recommends scheduling a meeting on your calendar so you’re in agreement that it’s a good time for both of you.

“Don’t bombard him or her when they first walk in the door after work. No one wants to talk about big life changes right when they get home after a long day!” she said. “Instead, be intentional and choose a time when you are both ready to talk about your future.”

If your spouse is hesitant or you think they may try to get out of it at the last minute, have something planned that’ll give them an incentive to show up. Maybe a bottle of wine or their favorite dessert — anything that will encourage their presence.

It’s important to know the wrong time to talk, too. Don’t bring up finances when you’re arguing about something else or in a time when either of you has heightened emotions. Your goal is to get your partner to associate paying off debt with the positive experiences, not negative ones.

Related: Money and Relationships: How to Merge Finances Without Any Drama

2. Listen more than you speak.

If you’ve put your opinions out there, then your spouse probably knows what you think about budgeting, debt, and saving money. But do you know how they feel? When you’re trying to get your partner on board with paying off debt, try to listen more and speak less.

Being excited about something can cause you to talk about it nonstop. Be aware of how often you’re bringing up financial topics so you don’t overwhelm or annoy your spouse. Then listen to what they say about things they want and frustrations with money or work.

Part of listening is paying attention to the things they’re not saying. For instance, try to take notice of their impulse purchases or how they behave when they’re paying for something. Noticing how they interact with money and spending can help you understand what they might be afraid to give up if they have to change their lifestyle.

3. Lead by example.

You don’t need to wait until your spouse is on board to make changes that improve your finances. Bettering yourself and celebrating small wins could inspire your partner to improve their own.

Of course, some things are hard to do when your spouse isn’t cooperating, so focus on actions that are completely in your control. Start budgeting your paycheck, cut down on your impulsive spending, and make extra payments toward debt when you can.

Don’t sugar coat your experiences to make it seem better than it is. Be honest when you’re struggling and reiterate why you’re committed even though it’s hard. This can be the most powerful example to motivate your spouse to join you.

4. Speak with kindness.

Before you’re on the same financial page, your spouse may make a big purchase without consulting you first or ignore your efforts to talk about something money-related. In these instances, be aware of the tone you’re using to respond to them and speak with as much kindness as possible.

Speaking with kindness doesn’t mean being a pushover. You can still be mad, frustrated, or discouraged. It’s important to communicate those feelings, and the reasons for them, with a tone and language that’s not accusatory.

Accusatory language, even if it’s not used on purpose, can quickly cause your partner to shut down, become defensive, and kill any constructive conversation that could’ve been possible.

5. Ask forward-thinking questions.

If you want to encourage more conversations about finances, don’t interrogate your spouse with questions about their past spending. Molly Ford-Coates, a financial counselor and founder of Ford Financial Management, recommends asking questions that get them thinking about their future.

“What do you want your future to look like? What will you be doing? Be as detailed as possible with your answers when you have this conversation. Write down your answers. Create a vision board,” she said. “When you have a shared vision for the future, it is much easier to work toward that vision together.”

Everything we do involves some level of financial stability. Find out what your partner wants for their future and start planning how to get there. That plan will inevitably include a financial component, but don’t start with that. Discover your spouse’s “why?” and it’ll give them a reason to care about being debt-free.

6. Be patient.

Your spouse may not be on board with paying off debt on your timeline. Many people don’t want to think or talk about finances because they can be the source of debilitating anxiety, guilt, and shame.

There are usually deep-seated reasons why people don’t want to acknowledge their money problems. It may take time to get to the root of those issues and start pursuing debt freedom at the same pace. Avoidance isn’t necessarily a red flag; it’s just something you’ll need to have patience with and work through.

Related: Opinion: Married Couples Should Have Separate Bank Accounts. Here’s Why

What To Do If Your Spouse Won’t Join Your Efforts

It can be extremely discouraging when you and your partner’s goals don’t align. And it can be downright devastating when financial goals seem to contradict each other.

Don’t lose hope. Even if it’s clear you and your spouse will never be on the same page, or it at least looks that way right now, there are ways you can still work together.

Seek Counseling. Couples counseling isn’t a sign that your marriage is sick or broken. Rather, it’s a preventative measure to keep it healthy. All couples can benefit from occasional counseling sessions, but it’s essential for couples that are having difficulty seeing eye to eye on something.

Getting an outside perspective from a trained professional can give both of you perspective into what’s most important: your relationship.

If your partner is apprehensive, remind them that this isn’t reflective of them as a person, and you aren’t trying to fix them. Couples counseling is all about learning how to embrace differences and work with them.

Reality Check. If your spouse is in hardcore denial, they may need a reality check to what’s really going on because of your debt. Take inventory of all the numbers including the amount of your debt, how much you have saved for retirement, what you have saved for emergencies, and the impact those numbers have on your family’s future.

Lindsay Bryan-Podvin, licensed social worker and financial therapist, says to make your reality check as kind as possible. Avoid singling them out as the source of the problem, and be sure to cite your contribution to the current financial situation.

“Use ‘I’ and ‘we’ carefully, so you own your stuff, and they feel like they are a part of your team,” she said. “For example, ‘I’ve been feeling ready to start paying down our loans more aggressively and wanted us to take a look at our payoff plan together.’”

Stay Alert. Not every story has a happy ending. Unfortunately, financial infidelity is a common occurrence in relationships. If your spouse refuses to take responsibility for their finances, you have to be diligent in checking your shared and personal financial accounts and legally protecting yourself.

Look for unfamiliar bills, a regular occurrence of “surprise” packages, or a change in status on financial accounts like an account opened without your consent or your name being taken off a joint account. These could signify that your spouse is mishandling your money. You want to hope for the best, but it’s smart to prepare for the worst.

Related: Do Dave Ramsey’s 7 Baby Steps Actually Work?

Financial and Relational Security Is the Ultimate Goal

The point of paying off debt isn’t to have more disposable income or to simply say you’re debt-free. For most people, the real reason they want to have their debt paid off is to have more freedom and flexibility to live a life they love.

And the life you love undoubtedly includes your spouse. So remember that your family is more important than being debt-free. Keep living in a way that promotes your financial security and inspires your partner to join you. It may take time, but it’ll be worth the wait.

The post How to Get Your Spouse on Board with Paying Off Debt appeared first on DollarSprout.

Since our kids were born, I’ve spent considerable time picking the perfect Christmas gifts for everyone. From the latest tech gadgets to an adventure to New York City, I never fail to surprise my family Christmas morning.

While the presents I gave brought joy to my kids’ faces, the credit card bills that showed up in January were less than enjoyable. In recent years, I’ve learned how to buy thoughtful gifts still while sticking to our Christmas budget.

I’m not alone in spending too much during the holidays. According to a 2020 MagnifyMoney holiday spending survey, 31% of Americans incurred holiday debt. Of those people, 56% used a credit card to finance their purchases._[1]

As a husband and parent of four teenagers, I want to spoil my family with gifts to show how much I care for them, but it’s become too easy to overspend, no matter what budget I set.

A Simple but Effective Process to Reduce Holiday Debt

If you’re like I and you took on debt during the holiday season, there are steps you can take to dig yourself out. Debt can hang around and ruin many of your plans and your finances if you let it. Here are some steps you can take to pay off your holiday debt and get back on track financially.

Step 1: Formulate a debt-payoff plan

You want to start tackling your debt the way you would most other obstacles in life: come up with a solid game plan. First, you want a clear picture of where you stand, so find your credit card or bank statements. Add up all of your holiday purchases, from gifts and food to greeting cards and travel, to determine how much debt you accumulated.

Once you’ve taken stock of your debt, you can create a realistic plan to pay it off. Decide which debts to pay off first. It’s good to look at your credit cards’ interest rates if you used more than one card to pay for holiday purchases. One method you can use to pay off your holiday debt is the debt avalanche method, where you pay off credit cards with the highest interest rates first. Another option is the debt snowball method, which involves prioritizing your debts from smallest to largest.

Both are effective methods you can use to get out of debt.

Step 2: Reduce your future spending

If you’re serious about quickly paying down your holiday debt, you’ll need to find extra money to put on your credit card balances.  Cutting unnecessary spending can help create this surplus to pay off debt. This can be as simple as cutting down on eating out for a few months. You can also use a service like Trim to go through your accounts to find unused subscriptions, services, or lower bills on your behalf.

You may also need to make sacrifices to get where you need to be financially. It’s not always easy to give up what you love, but sometimes that’s what’s required to eliminate your holiday debt.

Step 3: Boost your income

Cutting your spending may not be enough. You may need to find additional sources for income to finish paying off holiday debt.

If available, you could work some overtime hours at your current job. Another option is to pick up a part-time job or start a side hustle in your spare time to earn extra money. If you receive bonuses from your job or are expecting a tax return, those funds can go toward paying off debt, too.

Step 4: Consider a balance transfer card

Another way to avoid mounting interest charges is to transfer your existing credit card balance to a balance transfer credit card. They offer introductory 0% APR on balance transfers for extended periods, sometimes as long as 18 to 21 months.

When researching balance transfer credit cards, look for balance transfer fees. While there’s no interest during the introductory period, many cards charge a 3-5% fee based on the amount you transfer to the new card.

If you go this route, make sure that you pay off the entire balance transfer before the introductory rate expires and you don’t use the card for any additional purchases.

How to Avoid Holiday Debt Next Year, Too

Holiday debt may seem like a part of life, but this doesn’t have to be the case. With a little research and advance planning, you can be prepared financially when the holidays come around again. Here are four action steps to take to avoid financial mistakes next holiday season.

Step 1: Plan ahead

It’s amazing how much planning ahead can help your holiday spending. Years ago, my wife and I created a Christmas budget, and this simple step revolutionized our holiday spending.

We made a list of everyone we buy presents for and the amount we spend on them. The list includes kids, parents, siblings, cousins, teachers, and anyone else who might warrant a gift. We divide that by 11 and set aside that amount every month in a sinking fund to make sure we have enough to cover all of our holiday spending by the time we need it.

To create your holiday budget, look back at who you bought presents for this past year and how much you spent. Ask yourself how much you might need to increase your budget or decrease the number of gifts you buy. Do all of those people even need gifts?  Use all of this information to create a realistic budget. Set spending limits for each person on your list. Don’t forget to factor in other expenses around the holidays, too.

To figure out how much you’ll need to save each month, add up how much money you’ll need to cover all of your holiday expenses and then divide it by the number of months left in the year. For instance, if you’re putting together your budget in June, you’ll divide your total by six.

To make sure you don’t touch your holiday money, set up a separate online savings account for your budgeted funds. You could also pull cash from your bank account every month and use the envelope method. Find whatever works for you, so you don’t touch the money for anything other than paying off holiday spending. After the holiday season comes and goes, you’ll be glad that you took the time to plan ahead.

Related: 74 Creative Ways to Save Money In Every Part of Life 

Step 2: Shop year-round

Deals can be found all year, not just on Black Friday, Cyber Monday, and during the holiday season. Keep a running list of gift ideas for your loved ones. When you come across a good deal, buy it and save that item for Christmas. Make sure to account for it in your holiday budget later on.

Additionally, there are specific times of the year you should buy certain items. If one of your kids wants a new bike, you’ll find the best deals at the end of summer when new bike models come out. Depending on what items are on your list, you may save money by shopping before the holiday shopping season even starts.

Step 3: Get rid of existing debt

Debt can put a damper on any type of financial planning. If you have existing debt, work toward paying it off before the holidays come around again. If not, you may be more inclined to add more debt from holiday spending. According to a 2020 CreditCards.com holiday debt poll, 57% of people with existing credit card debt think the holidays are a valid reason to add more debt. For people without any credit card debt, that number drops to just 29%._[2]

Similar to paying off holiday debt, work through the steps above to pay off all of your other debt too. If you have any balances on your credit cards or have any loans, work hard to pay them off quickly. Make it a point to start the holiday shopping season with as little debt as possible.

Related: 12 Steps to Paying Off Debt Fast

Step 4: Give DIY gifts

If you’re blessed with the crafting gene, consider making presents for your loved ones. This may not work for everyone on your list, but many people would appreciate receiving handmade gifts. Spend time on Pinterest or Instagram for inspiration and to find original and creative DIY ideas.

Even if you aren’t amazing with a glue gun or an expert painter, there are plenty of crafty ideas that don’t require specialized skills or tons of experience to make. Plus, handmade gifts create a more personal gift experience. Show your loved ones how much you care by creating a gift that you know they will love.

Related: 33 Christmas Gift Ideas Under $25

You Don’t Have to Overspend During the Holidays

It’s easy to get caught up in overspending during the holidays. I know I’ve fallen into that trap before. I love my family and want them to have whatever they desire. It’s hard to say no, especially when you find something on sale. It’s also hard to stay within your budget if you’re not actively tracking your holiday spending.

The reality is that spending less during the holidays is better than going into debt. The holidays are more than just presents. It’s also a time for family and friends, spending time together, and enjoying memorable experiences. If you have to cut back on how much you spend on presents, your loved ones will understand.

The holidays can be a stressful time, especially when you’re worried about going into debt just to buy someone a gift. If you have holiday debt, work toward dumping it as quickly as possible and create a plan moving forward to save for the holidays. Planning to reduce holiday debt does take work, but it’s worth it to avoid the stress that comes with overspending.

Related: 10 Savvy Ways to Save Money on Christmas This Year 

The post 4 Tips for Paying Off Your Holiday Debt appeared first on DollarSprout.

Ignoring calls and avoiding the mailbox isn’t a solution. In fact, it can make the problem worse. If you need help paying bills ASAP, there are organizations to help you get through a number of rough patches and back on your feet again.

Take Care of Your Necessities

Even if you can’t afford all your bills, it’s important to take care of your basic necessities. These are the expenses that, if missed, will negatively impact your quality of life and could prolong the cycle you’re already in.

The expenses you can’t afford to skip include basic food, housing, utilities, and anything you need to keep working (uniforms, transportation, etc.). If you have enough to cover these bills, you can safely get through one day to the next.

If you don’t have enough to cover them, pay what you can afford and find help to pay the rest.

Where to Find Help When You Need Help Paying Bills

When you need help paying bills, the best places to turn are federal programs, private or nonprofit charities, and individual provider programs.

For a list of programs available in your area, you can call 2-1-1, the United Way’s free confidential resource hotline. You can speak with an advocate any time, day or night, and find out local resources in your area that you may be eligible for.

There are also plenty of federal programs and charities that offer aid in specific areas.

Related: How to Stop Living Paycheck to Paycheck

Housing

To avoid eviction or foreclosure, you’ll first want to communicate and be honest with your landlord or lender. There may be options they’re willing to grant you on their own. If they’re unwilling to cooperate, then these programs can assist.

The U.S. Department of Housing and Urban Development (HUD) offers homeowners who’ve lost a job or experienced a significant decrease in income a reduction or forbearance period on their mortgage. HUD also offers refinancing and loan modification to make mortgages more affordable.

Gradient Gives Back Foundation awards a full year of rent or mortgage payments to deserving families nationwide. You can apply or nominate a deserving family on their website.

Salvation Army offers rent and utility payment assistance through its Pathway of Hope program. Services vary by community, so find your local Salvation Army to see all the resources available to you.

CoAbode is a non-profit home-sharing program for single mothers. The organization pairs like-minded single moms who can share the expense of rent as well as other expenses such as groceries, babysitting, and carpooling.

St. Vincent de Paul offers mortgage and rent payment assistance. The organization offers a number of other services as well. They send trained visitors to an applicant’s house to assess the needs and appropriate assistance. Visit the St. Vincent de Paul website to find your local society.

Utilities

Utility companies often have their own programs and partnerships to help customers struggling with payments. You can call or check your provider’s website for all your options.

The Low Income Home Energy Assistance Program (LIHEAP) assists families with heating and cooling bills and related home repairs. You can check your eligibility and apply online.

Lifeline is a federal program offering discount phone and internet service to low-income individuals. Lifeline is available in every state and eligible customers get at least $9.25 toward their bill. You can find a provider on the Lifeline website.

Dollar Energy Fund is a non-profit that provides utility assistance to customers of more than 40 utility companies across the country. Dollar Energy Fund also has connections with over 450 community-based organizations to further help limited-income households.

Food

If you’re hungry now, reach out to the National Hunger Hotline at 1-866-3-HUNGRY (1-866-348-6479) to connect with emergency food providers in your area. For long-term help, here are some organizations and programs to look into.

The Supplemental Nutrition Assistance Program (SNAP) provides benefits to help low-income families add more healthy foods to their shopping list. SNAP benefits are available to applicants that meet certain income and work requirements and can be applied for online.

The Summer Food Service Program (SFSP) is a federally-funded, state-administered program that provides free healthy meals and snacks to children and teens in low-income areas while school is out of session. You can apply and find service sites on the SFSP website.

Catholic Charities provides access to healthy foods via their food banks, pantries, and community farms. Catholic Charities offers more than just food. You can apply for food, housing, medical assistance, and more on their website.

Feeding America Network operates 200 food banks and 60,000 food pantries and meal programs around the U.S. You can use their searchable map to find one near you.

Medical bills

Whether you have medical bills to pay off from a one-time emergency or ongoing bills due to a chronic illness, there are several organizations dedicated to lifting the burden of healthcare.

Medicaid is a federal and state program providing free or low-cost medical benefits to eligible low-income adults, children, pregnant women, seniors, and people with disabilities. If approved for Medicaid, you can retroact coverage up to three months prior to application.

Modest Needs is a non-profit that offers grants for unexpected or emergency expenses. Modest Needs offers short-term financial assistance for individuals and families in crisis who are just above the income limits and are ineligible for most federal aid programs.

The Patient Access Network (PAN) Foundation helps underinsured people with chronic and rare diseases with out-of-pocket medication costs. PAN provides financial assistance for costs associated with over 70 diseases.

Patient Advocate Foundation (PAF) helps insured and uninsured individuals diagnosed with chronic illness pay medical bills, navigate insurance, resolve billing errors, and more.

Patient Services Inc. (PSI) subsidizes the cost of health insurance premiums and copays for patients with certain chronic illnesses. PSI can also help with travel costs associated with treatment.

Healthwell Foundation bridges the gap between what health insurancepays and the cost of treatment and medications. They can help with health insurance premiums, deductibles, prescription co-pays, travel costs, and out-of-pocket expenses.

Car payments

If you’ve missed some car payments, you can refinance or ask your lender for a loan extension and add those missed payments to the end of your loan term. If you can’t foresee being able to make those payments again soon, here are some options for assistance.

Working Cars for Working Families provides opportunities for low-wage workers to get access to a new or used car. Programs differ by area. They may include used car donations, special-term loans for those with credit disadvantages, and helping people save for a car through matched savings programs.

Vehicles For Change (VFC) receives car donations and sells them at a fraction of the true value to eligible low-income families. VFC also offers low-interest loans to help its families build credit on their purchases.

Charity Cars Inc. donates vehicles free of charge to struggling families to help them get back on their feet and become self-sufficient. Applicants register for a free account, earn votes from friends and family, and can then apply for a free car.

Lyft’s Job Access Program was launched in 2019 in 35 cities to help people struggling with access to transportation get to and from work, job training, or interviews.

Credit cards

If you can’t make your credit card payment, first reach out to the credit card company and explain your situation. If you’ve experienced a financial hardship and ask for help, you could get some late fees waived and your monthly bill lowered.

For further help, here are some non-profit credit counseling organizations that offer debt management plans. Debt management plans differ from debt settlement, consolidation, or credit repair companies which can be costly to your wallet and credit score.

National Foundation for Credit Counseling (NFCC) is the largest and longest-serving non-profit financial counseling organization. NFCC member agencies offer counseling for credit card debt and education on a number of other financial topics.

Take Charge America can help with credit card, student loan, and housing debt through free credit counseling and debt management plans.

GreenPath is another credit counseling service that, in addition to online services, has more than 50 physical locations across the country you can visit for in-person help.

What Else You Need to Know About Getting Financial Help

Getting financial help can be a struggle, especially if you’ve never needed these services before and you might have some questions. These are a few of the most common ones.

How do I qualify for financial assistance?

To figure out if you qualify for any financial assistance, you can visit a site like www.benefits.gov. You’ll need to answer a series of questions about things like your income, work history, and marital status. Once finished, you’ll find out which federal programs you qualify for along with a link to those individual programs and their application process.

For private and nonprofit organizations, eligibility criteria vary from program to program. However, many have income requirements based on the number of individuals in your household. These are typically based on the U.S. federal poverty guidelines.

Is financial assistance only for families?

No. There are programs for individuals and families. Some programs only offer services to parents of minor children, but others don’t have such strict restrictions. You’ll need to check with each individual program to find out who they serve.

Is a payday loan a good option if I need financial help?

While payday loans can seem like a good way to quickly access money in the short-term, the astronomical fees and interest rates aren’t worth it. There are other ways to make money quickly if you’re in a pinch.

Don’t Be Ashamed to Ask for Help

While the best way to protect yourself financially is by learning to budget, building your emergency fund, and having adequate insurance, it’s not always possible. Even if you are prepared, something like prolonged unemployment, a major illness, or a death in the family can quickly deplete what you have.

Government and non-profit programs can provide the assistance you need to bridge the financial gap until you are back on your feet. Although it may be difficult or demoralizing to ask for help when facing this kind of hardship, don’t give up. Keep doing what you need to do to take care of yourself and your family.

Assistance programs are there for those who need them. Take advantage of the ones you can.

Related: 25 Programs to Get Free Money from the Government When You Need It

The post Need Help Paying Bills? 22 Places Offering Immediate Support appeared first on DollarSprout.

Debt can claim a large amount of your income, making it harder to balance your budget. And it’s an increasing problem among Americans. Almost 30% of Americans don’t have any emergency savings at all, according to a 2019 Bankrate survey._[1]

If you don’t have any savings, you might need to rely on things like credit cards to pay for emergencies. According to a ValuePenguin study, the average U.S household debt is $5,700 and among credit card balance-carrying households, that number jumps to $9,333._[2]

That means that many families are spending spend hundreds of dollars per month on debt repayment, and thousands of dollars per year on interest

There is a solution to these problems that’s becoming increasingly popular — Dave Ramsey’s Baby Steps, a seven-step process for getting out of debt, saving for emergencies, and improving your overall financial picture.

Who Is Dave Ramsey?

Dave Ramsey is a financial expert who learned how to manage his money after being stuck with a large amount of debt from real estate failures when he was younger.

He took the lessons and principles he learned and launched his own business coaching others and self-published his book Financial Peace University.

His business grew from there, eventually rebranding to Ramsey Solutions in 2014, but the focus on teaching people how to get out of debt and take control of their finances remained the same. 

Dave Ramsey does this through his books such as The Total Money Makeover and Dave Ramsey’s Complete Guide to Money, and radio call-in show, The Dave Ramsey Show.

He also spreads his message through Financial Peace University, which are online or in-person financial classes held in churches around the country.

Ramsey also broadcasts his radio show as a YouTube channel.

Dave Ramsey has helped thousands of people around the world get out of debt. He blends together tough love, religion, and money management advice that helps people fix their financial habits and choices.

What Are Dave Ramsey’s 7 Baby Steps?

The cornerstone of all of his teachings is the Dave Ramsey Baby Steps. These are a series of actionable steps that you complete one by one to progress toward a healthier financial life.

Baby Step 1 – Save $1,000 in an emergency fund

One of the reasons people get into debt is because they’re not prepared to deal with emergencies. Thus, by saving up a small emergency fund, you can buffer yourself against having to rely on credit cards or personal loans the next time your car breaks down or your cat gets sick.

In this step, Dave Ramsey recommends saving up a starter emergency fund of $1,000. This isn’t meant to be your long-term emergency fund if you lose a job or become unable to work. That step comes later, but for now, this smaller emergency fund should do.

The things you need to do to complete this step will set the stage for your success further down the line. You’ll learn how to budget to make sure you’re earning more than you’re spending, allowing you to save the money you need for your emergency fund. This will also help you break out of the paycheck-to-paycheck cycle.

Dave Ramsey is a big proponent of becoming “gazelle intense” from here on out. This means cutting every last little expense you can, living frugally on meals of rice and beans, and cutting cable and other entertainment expenses.

At the same time, you’ll do everything in your power to increase your income. Dave Ramsey routinely recommends selling whatever you can and finding a second job. He even suggests that busy parents deliver pizza or drive for Uber on the side.

Baby Step 2 – Pay off all non-mortgage debt using the Debt Snowball

For many people, Baby Step 2 is the biggest challenge and the step that takes the longest time. In this step, you’ll focus on paying off all of your debt except for your mortgage using a technique known as the debt snowball.

To implement the debt snowball method, you make a list of all of your debts and organize them by balance, with the smallest one at the top of the list and the largest at the bottom. After paying your basic living expenses every month, you put all of your extra money toward your debts, starting with the smallest debt first.

This helps you build quick wins, and keeps you focused and committed so that you don’t lose sight of the goal while paying off your larger debts.

 

 

 

 

 

 

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Remember making snowmen as a kid? You would start with a small snowball, then roll it along the ground, picking up more snow until you had a massive snowman belly. That’s the concept behind the debt snowball.⁣ ⁣ While you are paying off debt, you make minimum payments on all but one debt account. ⁣ ⁣ Why is it called the debt snowball? Because the amount you put towards principle (your balance) snowballs every month. You keep putting the same amount of money towards your debts, even as you pay each one off, increasing the amount that goes towards principal over interest. ⁣ ⁣ Do you have a method for paying off your debt? Have you ever tried the snowball method?

A post shared by DollarSprout Personal Finance (@dollarsprout) on Sep 21, 2019 at 7:36am PDT

If you have a lot of debt, you may be working on this step for a long time. But remember, the more you cut your expenses and the more you increase your income, the faster you’ll get through this step.

Baby Step 3 –  Save 3-6 months of expenses

Once all of your debt is paid off you can then focus on saving up a larger, fully-funded emergency fund. This will help you in case of a major emergency, such as having to replace the roof on your home or losing your job. Ideally, with this fund in place, you’ll be prepared to handle just about any emergency without having to rely on taking on debt again.

The changes you’ve made by lowering your expenses and increasing your income in earlier steps should help you complete this step even faster. You’ll need to have a budget set in place to complete this step, for example, because you’ll need to know exactly what your monthly expenses are.

Ramsey recommends setting aside 3-6 months of expenses, not income, because your expenses are what you’ll be paying in the event you lose your job. Besides, saving up 3-6 months’ worth of expenses feels less intimidating than saving 3-6 months’ income.

A good place to store your fully-funded emergency fund is in a separate, high-yield savings account online where you can still access it quickly, but where you can also earn interest

Baby Step 4 – Invest 15% of gross income into retirement accounts

Now that you’re debt-free and have a fully-funded emergency fund, Dave Ramsey’s next step is to start saving for retirement.

If you have a workplace retirement plan, this can be as simple as speaking to your HR department and getting set up for automatic withdrawals. If you’re self-employed or your workplace doesn’t offer a retirement plan, you’ll need to figure out how to do this on your own.

Ramsey recommends investing in four types of mutual funds: growth, growth and income, aggressive growth, and international. This step is overwhelming for a lot of people who aren’t investing professionals, and Ramsey maintains a network of investment advisors to refer people to for more help.

It’s important to note that Dave Ramsey’s picks of investment advisors aren’t entirely unbiased, as these professionals need to pay a fee to Dave Ramsey in order to be endorsed by him. 

Baby Step 5 — Save for kids’ college

Many parents want what’s best for their kids, even if that means footing the bill for their college tuition. Taking on student loan debt can saddle your kids with heavy payments and limit their employment options after they graduate. Many parents want to prevent this, so it’s important that they save now to pay for college later.

Ramsey recommends saving money every month in a 529 college savings plan or an ESA (Educational Savings Account) in order to get a tax break.

This also keeps your money more protected from withdrawing it for non-college uses, since you can generally only use the money in these accounts to pay for approved college expenses rather than a last-minute vacation.

You can do this step with Baby Step 4 if you have money left over after contributing 15% to your retirement account. Even though your kids are important, Ramsey advocates prioritizing your retirement savings first. Taking on debt isn’t ideal, but it’s an option for your kids to attend college. You, on the other hand, can’t take out a loan for retirement.

If you don’t have kids, you can ignore this step and move on to the next one.

Related: How Your Parents’ Finances Could Become Your Liability

Baby Step 6 — Pay off your home

Mortgage debt works differently from other types of consumer debt, making it easier to put aside until after you’ve got other healthier financial habits in place. You’ll still be continuing Baby Steps 4 and 5 in this step, but now you can focus on getting rid of this last hurdle.

If you’re still paying off your mortgage, now is the time to get rid of it. As you did with your debt in Baby Step 2, you’ll put all of your extra money toward paying down the mortgage on your home.

This allows you to own your own home outright so that you don’t have to worry about mortgage payments as you head into retirement.

Baby Step 7 — Build wealth and give

The last step is to create a legacy by giving back with your money. That can look like helping out friends and family or donating to charitable causes that are meaningful and important to you.

You can also focus on building wealth to live a more comfortable life in retirement, create an inheritance for your kids, or create a foundation to continue your legacy after you’re gone.

It’s your call on how to use your money now that it’s not obligated to debts.

How to Stay Motivated While Working the Baby Steps

These steps seem simple at first, but it’s crucial to have a support system in place to make it past even the first step. You’ll need people around you to keep you determined and focused to make the sacrifices necessary and to work on changing your habits.

Determine your why

You can’t change the way you’re currently doing things unless you have a compelling reason to make those changes. Even if what you’re doing now isn’t working for you the way you want, it’s a familiar routine. To change that requires getting uncomfortable, at least until you’ve established new habits.

So, the first step is to decide why you want to change.

Maybe you see how crippling student debt has been to your life and you want something better for your kids. Or maybe you’re embarrassed about how your credit cards keep getting declined when out with friends. Maybe you’re frustrated that you aren’t able to buy your own home with a nice yard for your dog.

Everyone’s “why” looks different, and it’s personal. Yours doesn’t have to look the same as anyone else’s, but it does have to be something that keeps you motivated to progress.

Use visual reminders

Finances are easy to ignore, which is why many people run into problems. Instead, during this process, try bringing yours out into the light

Debt Free Charts are a fun and easy way to track your way to your financial goals. You can also try other creative things, such as creating a paper chain of your debt and removing links as you work your way through Baby Step 2.

You can also hang up pictures of the things that are motivating you to change, such as places you’d like to travel to or homes you’d like to buy someday.

Finally, setting up a budgeting app such as Mint or YNAB on your phone can provide you with alerts and notifications about how you’re spending money throughout the month. These notifications will help you figure out your spending habits and triggers, and can help you change some potentially self-sabotaging behaviors.

Celebrate small wins

Paying off debt can be a long slog. You don’t need to go crazy, but each time you pass a milestone give yourself permission to spend a small amount of money to celebrate it.

Some things you can celebrate are paying off individual debts, or chunks of larger debts. For example, if you have a $50,000 student loan, you can throw a mini-party every time you pay off a $5,000 or $10,000 chunk of that debt. After all, every little step gets you closer toward your debt-free goal, and it’s important to recognize your hard work and accomplishment.

However you choose to celebrate, whether it’s with a massage, fancy dinner out, or a new wallet, the important thing is to have fun with it. These small celebrations give you the momentum and incentive to keep going.

Build rewards and splurges into your budget

When you’re working hard to complete the Dave Ramsey steps, you’ll be living on a tight, “gazelle-intense” budget. This means that you cut every expense you can so that you can put as much of it toward completing each Baby Step as possible.

This isn’t sustainable in the long run, especially if you’re dealing with a large amount of debt on a low income. To make it sustainable, build small rewards and splurges into your budget. These give you something to look forward to and a reason to keep working toward your goal.

The key here is “small” rewards and splurges. For example, you don’t need to forego vacationing for the next several years until you’re entirely debt-free. Instead, you can choose a more cost-effective vacation such as camping or visiting friends and family members.

You can also create a small line item in your budget for movie tickets, buying books, or whatever your hobbies are. Try substituting your expensive habits, such as dining out, with cheaper ones like going out for a happy hour or one drink or using Groupon to save money.

Find a support system

Going through all of Dave Ramsey’s Baby Steps is difficult if you’re doing it alone. That’s why it’s a good idea to find people who can support you, whether they take part in celebrating your wins or act as an accountability buddy who is doing the program alongside you.

This is one reason why many people prefer to do Dave Ramsey’s Financial Peace University in-person with their local church. Going through the program together with other families, learning about the techniques, and growing together can be a very powerful motivator to help you keep going when things get tough.

It can also help to spend time around people doing the same thing as you, who can encourage your new habits and choices, rather than those who encourage the behaviors that put you in your situation.

Related: How to Avoid Lifestyle Inflation When Your Salary Increases

Why People Love the 7 Baby Steps

The strength of Dave Ramsey’s 7 Baby Steps is that it’s broken down into a one-size-fits-all action plan that almost anyone can do. It’s time-tested, and many people have used this plan as a guide to become debt-free over the years.

The backbone of Dave Ramsey’s plan is that it’s easy to follow, easily accessible, and eliminates much of the heavy decision making involved in getting a handle on your finances. He tells you step by step what to do and the order in which you should do it. You can also access online tools and calculators to help keep you on track with his Baby Steps.

There’s no shortage of available information and connections.

You can find a large community of people who follow Dave Ramsey and are going through the program. You can connect with them online through social media, in community forums, or even in-person if you go through Financial Peace University. This support group helps carry many people forward.

There are also live events to attend to connect with other fans and followers of his Baby Steps plan.

Overall, it’s a simple, accessible plan. You follow the steps in order and you’re debt-free. There’s nothing else to do or consider.

What the Critics Have to Say

Dave Ramsey’s 7 Baby Steps face a lot of criticism, especially from financial professionals. Most of the complaints stem from the fact that following a one-size-fits-all plan leaves no room for customization or individual circumstances. And since not everyone’s financial situation is the same, not everyone can use this type of financial plan.

It might get you toward your goal, but it might not be the fastest, most cost-effective, or financially sound way to do it.

For example, Ramsey recommends that you avoid saving for retirement until you’ve paid off all of your non-mortgage debt, even if that means foregoing a company match on your savings. That’s a big no-no among financial professionals because you’re essentially giving up free money. You’ll fall further behind in your retirement savings at a time when most people already aren’t saving enough.

He also makes no distinction between good vs. bad debt, only that debt should be avoided at all costs. This can be a costly mistake if someone has the aptitude for a high-earning career as a doctor or software engineer, for example, but can only do it by taking out student loans that they’d quickly be able to pay off.

Finally, Dave Ramsey frequently comes under fire for recommending only a small $1,000 starter emergency fund. For many people, such as those living in high cost-of-living areas, with large families, or with fluctuating income, this isn’t enough money to protect them while paying off debt.

Although his plan is simple, it’s not without its faults, and you need to weigh those against the ease of following the Baby Steps.

Who Should Use Dave Ramsey’s Baby Steps?

Dave Ramsey provides a color-by-number solution to improving your financial life. He recommends that people strictly follow his plan to save money, with few or no allowances.

This might work for some people, especially those who are confused about determining the best solutions for their financial situation. Since this describes many Americans, it helps explain why Dave Ramsey is so popular. It’s easier to be told, step-by-step, what to do rather than combing through the available advice and information and making a decision.

The reality, however, is that, even if you disagree with some of his advice or the order of the steps, you can use and adapt Dave Ramsey’s Baby Steps for your own situation. You don’t necessarily need to follow his steps exactly or precisely. If you would feel more comfortable with a larger starter emergency fund, for example, or using credit cards to responsibly earn rewards, you can do so.

You can choose to use his advice as a guideline or roadmap rather than an exact plan, but his advice is a good starting point for anyone looking to take control of their finances.

The post Dave Ramsey’s 7 Baby Steps: What Are They and Do They Actually Work? appeared first on DollarSprout.

From home mortgages to car loans and credit cards to student debt, there are times when borrowing money is necessary. Few people have the cash to pay for a home or college education. With so many Americans in debt, a major question arises: should you pay off debt or save?

Carrying debt can put a damper on the future, and the statistics about Americans’ futures look bleak lately. A 2017 GOBankingRates survey reported that 57% of American adults have under $1,000 in savings, while 39% have no savings at all._[2] Being in debt isn’t ideal, but obviously neither is having no savings.

If you’re facing the question of whether to save or pay off debt, the answer isn’t a straightforward one. However, there are some good financial lessons you can apply to decide which is more important right now.

Is it Better to Pay off Debt or Save Money? Two Approaches

There are two different approaches to handling whether to pay off debt or save money, but they don’t have to be mutually exclusive.

1. The Mathematical Approach to Debt Versus Savings

The mathematical answer to whether to save money or pay off debt says that you should put your money wherever it will work hardest for you.

If you’re debating whether to pay off some debt or put excess cash into a retirement saving account, look at it this way: If the student loan interest rate is lower than the return rate from the retirement account, pay the minimum on the debt each month and put extra money into the retirement account.

Conversely, if you have high-interest debt that’s costing more than you could make on the returns from investing extra money, you should focus on paying off the debt before saving.

For example, say your only debt is a student loan with a 4% interest rate. If you can reasonably expect a 6% return from your retirement account, the mathematical solution would be to pay the minimum on your student loans and invest the rest. However, if you have a credit card balance with a 19% interest rate, it makes more sense numbers wise to work on paying off the high-interest debt.

If you need help comparing debt to savings, there are online calculators that can help determine which is a better priority for your excess income.

2. The Emotional Approach to Debt Versus Savings

Many people have a negative emotional reaction to being in debt. Therefore, when looking at whether to pay off debt or save, they decide to tackle debt first, even if the numbers don’t necessarily support that decision.

Focusing on paying off what you owe before saving creates greater peace of mind for some. The truth is, money is about far more than budgeting and simple math.

There is a great deal of emotion that impacts our everyday financial decisions. If that wasn’t the case, we’d all spend less than we make, no one would have debt, and there would be no money problems to speak of.

Do you have to choose between paying off debt and saving?

When asking whether to pay off debt or save, is it necessary to choose one or the other? Of course not.

It’s possible to put part of your excess income toward paying down debt and another part of it toward saving for your future. That does, however, require that you have a fair amount of extra income.

Related: 74 Money-Saving Tips You Can Use to Save Money Each Month

How Do You Calculate Whether to Save or Pay Off Debt?

Most of us believe our money should go where it has the biggest positive impact on our overall finances. For that reason, you might be leaning toward the mathematical approach.

But if your debt is spread out across multiple loans, like a mortgage, car loans, and student loans, and your investment opportunities are diverse with varying rates of return, the calculation becomes a little more complex than just comparing your interest rate on a loan to the interest you can earn from an investment account.

When you consider compound interest, things get even tougher to calculate. Certain accounts may not have the best return this year, but their potential to earn you money over time with compound interest is unmatched. You’ll lose that potential by not contributing to compounding accounts as early and often as possible.

Related: Should You Marry a Spender If You’re a Saver?

A Step-by-Step Plan for Debt Versus Savings

If you’re feeling a little lost right now, that’s okay. It’s because there’s not a definitive right or wrong answer to whether you should pay off debt or save. However, this step-by-step plan is what we would recommend for people who have debt but want to start saving for the future.

Step 1: Max out your 401(k) match.

If you have an employer who matches your 401(k) contributions, your first step is to put as much as they’re willing to match into that account every single month.

For example, if your employer matches up to 2%, then you get a 100% return on 2% of your salary. That’s free money for your future.

Even if your employer only offers a 50% match, a 50% return is better than no interest rate, however subprime your loans may be. There is nowhere your money will be more beneficial to you, so this is your first step.

Step 2: Build an emergency fund of savings.

If you’re wondering whether to pay off debt or tackle your emergency fund first, the answer is to build an emergency fund. The last thing you want is to have to turn to credit cards and take on more high interest debt if you have some kind of emergency, like a medical bill, car repair, or home maintenance need.

The amount you’ll want to start with depends on your situation, like whether you own or rent a home, if you have children, and job security in your industry. The more financial responsibility you have, the more you’ll want to stash away just in case.

If you rent and are just starting your career, you can probably get by with a mini emergency fund of $1,500 to $3,000. If you own a home or have children, you should try to have three to six months’ worth of income in your emergency fund. That way, you can handle just about any emergency that comes your way; even if it comes to losing your job.

Related: How to Pay Off Unexpected Medical Debt

Step 3: Focus on paying off debt with high interest rates.

Now that you’re contributing to your 401(k) and have a small emergency fund, turn your attention (and excess income) toward your debt. Any debt you have with subprime interest rates, or rates higher than 9%, should be the first to go.

Interest rates this high will likely cost you more money than you would make on most investments. Paying these debts off as soon as possible means you’ll pay less in interest.

If you have high interest debt and know that it’s going to take you a while to pay it all off, you may want to consider refinancing with a personal loan. The idea here is to replace a high interest debt (like credit card debt) with a lower interest rate loan. For instance, if you are paying 24% APR on a credit and you take out a personal loan at 12% APR — and immediately use your loan proceeds to pay off your credit card debt — you’ll be left with a more manageable debt to pay off. In this example, 12% still isn’t ideal, but it’s a lot better than 24%!

Related: 3 Debt Relief Services and How to Choose the Best for You

Step 4: Decide your savings and debt priorities.

At this point, your finances are in pretty good shape. You have an emergency fund and you’ve wiped out any high-interest debt. Should you pay off other debt or save more at this point? It’s up to you now.

If your debt interest rate is below the average rate of return for the stock market — roughly 10% — then it probably makes more mathematical sense to invest your money. Interest rates above the 10% mark are considered high-interest debts and will probably be worth it to pay off before you start investing.

Having some low-interest debt remaining isn’t necessarily a bad thing. You can start working on that next, or if you have other financial priorities, start working toward those. It all depends on your debt tolerance and financial priorities.

Maybe you’ve been wondering whether to pay off debt or save for a house down payment. If buying a home is one of your goals and you’ve paid off your high-interest debt, it might be time to start saving toward your down payment. On the other hand, if getting out of debt completely is your top priority, you could keep throwing your extra income toward your remaining debts.

Related: Here’s What People Mean When They Talk About “Good Debt vs. Bad Debt”

Step 5: Stick to your spending plan and keep building your savings.

The beauty of personal finance is that’s it’s just that — personal. You don’t have to dedicate all your extra income to paying off your debt or saving. You can do both.

Keep working toward being debt free, and keep contributing to your retirement savings, too. With the financial foundation you’ve built, you should be able to pay down your remaining debt while continuing to plan for the future.

Related: How to Track Expenses in 3 Easy Steps (And Never Fail at Budgeting Again)

Pay Debt or Save Money? It’s a Personal Choice

At the end of the day, the decision to pay off debt or save is a choice each individual has to make for themselves. Every situation is different. For some, it may make more mathematical sense to put the minimum payment toward debt and any remaining income toward investing. However, the desire to be debt free may sway them to do the opposite.

The key takeaway is to figure out what makes mathematical sense for your situation as well as what aligns with your saving goals and values. From there, you can make an informed decision and create a plan that inspires you to take action.

The post Is It Better to Pay Off Debt or Save Money? How to Decide appeared first on DollarSprout.

Whether you’re broke, have a low income, or have bad credit, the steps are all the same. Spend less than you make and put any extra cash toward paying off your debt.

In practice, though, organizing what you need to tackle first, and knowing how to get started can be overwhelming. It can leave you feeling trapped and prevent you from getting started altogether.

To help you on your way to financial freedom, we’ve put together this simple, step-by-step guide to help you build a debt payoff plan. It doesn’t matter if you have no money or your income is low. Even with bad credit, you can still put this guide to good use.

Let’s walk through the steps to help you get out of debt once and for all.

Step 1: Find Out How Much Debt You Owe

You can’t develop a debt payment strategy until you know exactly what you’re up against.

It’s time to gather up all your debts – from that $40 store credit card balance to your $30,000 car loan – and put it all in one place.

Write down the debts you have, how much you owe on each, the interest rate, and the minimum payment.

If you aren’t sure about the interest rate, take the time to open your accounts to find the exact number. High-interest rate debt is a bigger drag on your success than low-interest debt, so you need to know which is which.

Totaling it all up in black-and-white may be scary, but you’re getting ready to cut that number down! Promise yourself that is the highest your debt number will ever be.

Step 2: Choose Your Approach

Once you know exactly how much you owe, it’s time to put a plan together for how you’re going to get out of debt.

Throwing money at a different debt every month, without tracking your progress, is a surefire way to burnout. You’ll feel like you’re spinning your wheels and will give up too soon.

The best way to pay down debt is to focus on one piece of debt at a time until that is entirely paid off. In the meantime, make only minimum payments on the other debts.

This gives you milestones to celebrate, motivates you to keep going, and keeps you organized along the way.

So the question is, how do you decide which debt to pay off first?

There are two main philosophies when it comes to making this choice, the “Debt Snowball Method” and the “Debt Avalanche Method.”

Debt snowball method

In a nutshell: Prioritize your debts from smallest to largest, ignoring interest rates.

Remember making snowmen as a kid? You would start with a small snowball, then roll it along the ground, picking up more snow until you had a massive snowman belly. That’s the concept behind the debt snowball.

With the debt snowball, you start by paying off your debt with the smallest balance, regardless of the interest rate.

While you pay off that debt, you make minimum payments on all the others.

Why is it called the debt snowball? Because the amount you put toward the principal (your balance) snowballs every month. You keep putting the same amount of money toward your debts, even as you pay each one off, increasing the amount that goes toward the principal over interest.

Debt avalanche method

In a nutshell: Prioritize your debts from highest interest rate to lowest, ignoring size.

The methodology of the debt avalanche is similar to the debt snowball, except with this method your goal is to minimize interest costs. No extra profits for those greedy creditors from you!

With the debt avalanche, you start by paying off the debt with the highest interest rate, regardless of size.

Then move on to the debt with the next highest interest rate.

Why an avalanche instead of a snowball? Because, by eliminating high-interest costs first, you put more of your cash toward actual principal over time. This means getting out of debt somewhat faster (and cheaper).

Decide which debt you will tackle first

What’s more important to you? Getting quick, early wins by paying off small debts, or paying the least amount of interest?

Both the snowball and avalanche methods have their benefits. And while the debt snowball isn’t mathematically the cheapest way out of debt, it is one of the most effective. Pursuing a debt-free life can be a long process, depending on where you are starting. Paying off a few debts early on can really get you excited to keep going.

Action Item: Choose whichever method sounds best for you, then organize your debts in that order. After, you’re ready to start making payments.

Step 3: Make Some Big Changes

While small, day-to-day changes matter, a few big changes can fast track you to getting out of debt. Consider these ideas and decide whether the expense they represent is truly worth it to you.

Get rid of your credit cards

Are credit cards burning a hole in your pocket? It may be time to cut them up.

If credit card debt is part of your problem, sticking to cash and debit cards can help you reset your spending mindset. Nothing is more discouraging when you’re paying off debt than realizing you increased it accidentally with an impulse credit card purchase.

Once you are officially debt-free and used to spending less than you make each month, you can revisit the issue. In the meantime, credit card rewards don’t offset interest charges.

Sell your car

Have a hefty car payment? Consider selling your car for a cheaper, used model to eliminate the debt and reduce your insurance costs.

Look for good used car deals outside of new car dealerships. You’ll have more room to haggle with private sales and at independent, used car dealers. Just be sure you have a good mechanic look over the car before you buy it.

Don’t have a car payment? Decide whether your family can get by with one car instead of two. Dropping your spouse off at work in the morning might feel like a hassle, but if that extra 15 minutes saves you $500 a month, it might be worth it.

Stop investing (for now)

Saving for the future is essential, but when you have expensive debt that is holding you back, you need to set your priorities. Pulling back on investing in the short-term can put you in a better position to invest adequately in the future. View each dollar you save in interest cost as a dollar wisely invested.

Note: We would never recommend cutting your 401(k) contributions to a point where you don’t receive your full employer match. That’s free money, and the instant return is more than worth whatever you are paying in interest.

Cut cable

It’s 2023. You can watch most of your favorite shows online, and even notable sporting events are offering free streaming options.

We watched the Super Bowl last year via Amazon Prime.

If you haven’t cut the cord yet, it’s time! Traditional cable packages run over $100 a month and can be a major drag on your goals.

Sell your unused stuff

We could all do with a bit of minimizing. But instead of heading to the dumpster with your kids’ old toys and that ice bucket Aunt Marge sent you, list them for sale on Decluttr, letgo, or Craigslist.

On average, people have over $1,000 worth of stuff in their house that they don’t use. When we went through our minimizing process, we sold over $1,200 of books, toys, extra kitchen gear, and more.

The fringe benefit of this exercise? You realize how many things you’ve paid good money for that you didn’t really need. That tough reality makes it easier to say no to spending in the future.

Related: How to Make the Most Money Selling on Craigslist

Step 4: Create a Monthly Budget

Want to know how much you can put toward debt each month? You’re going to need a budget.

A reasonable budget helps you understand where your money is going. It alerts you to where cash is leaking out to things that don’t really matter to you. And it clues you in on how much you can afford to spend on the things you do want.

By building a budget thoughtfully and allowing yourself some flexibility, you can reduce money stress by knowing there is always money in the bank for the things you need.

How to make a budget

Before you dive in, remember one thing:  the budget you create today is not set in stone.

Your categories, spending, and habits will change over the first few months; and that is perfectly fine! It will take time to adjust to tracking your expenses and creating awareness of your needs.

1. Figure out how much money you make.

Look up exactly how much you get paid each pay period. This is what you have to work with.

2. Define your core expenses.

Housing, utilities, groceries, insurance – These are nonnegotiable expenses and must be covered first.

3. Write out your debt payments.

For now, assume you only make minimum payments on all of your debts since that is the amount required.

4. Create categories for regular expenses and assign reasonable spending limits to each item.

Don’t be afraid to have many budget categories. It will help you have a greater understanding of where things are going. Some regular expenses include internet, cell phone, household goods, medical costs, pets, haircuts, and car/home repairs. Not every item will have an expense each month; but by setting some money aside for those irregular expenses, you’ll be ready when they hit.

Related: How to Pay Off Unexpected Medical Debt

5. Allocate remaining money between debt paydown and quality of life expenses.

The money that is left over from your income after completing steps 2-4 is what you have to contribute toward your goals and fun. In addition to debt paydown, you may want to allow for dinners out, gym memberships, gifts, etc. Divide the money in the way that best works for you.

Tip: While you may want to run at your goals full speed, always have some pocket money budgeted. Even if it only covers one Starbucks coffee a month, those little treats will keep you sane.

If you have very little money left over after Step 4, you may need to review your core and regular expenses. Without big lifestyle changes, you may be stuck treading water, finding it difficult to ever fully get out of debt.

As you get accustomed to your budget, don’t be afraid to shift money from one category to another. There is no such thing as a normal month. Don’t go on a spending splurge and completely fall off the tracks just because you didn’t accurately predict the cost of a house repair.

Related: 3 Debt Relief Services and How to Choose the Best for You

Step 5: Lower Your Interest Rates to Save Money

The less interest you can pay to your creditors, the faster you’ll be able to escape your debt. Check out these top ways to lower your interest rates.

Consider refinancing your student loans

Student loans dragging you down? You may be able to refinance to a lower rate and shorter term.

Reducing the term of your loans, even with a lower interest rate, will likely increase your current monthly payment. But with fewer years of payments to handle, you can save a bundle over time. SoFi, a top student loan refinancing provider, offers one such service. With no prepayment penalties and no hidden fees, it’s an easy way to save thousands of dollars in interest payments over the life of your loan.

Negotiate your credit card interest rates (or consolidate)

Credit card interest rates aren’t set in stone. It is a competitive market out there for credit card companies, which means they have to be flexible to keep customers.

If you’re a long-time customer and in good standing, it doesn’t hurt to call and ask for a reduction in interest rates. More often than not, they will be willing to make a cut to keep you as a customer.

Things to mention to get them on your side? Let them know how long you’ve been a loyal customer and that you would love to stick around. But, also share that other credit card companies are offering you lower rates, even 0% introductory rates for balance transfers and that you can’t ignore the interest savings. Usually, they swing into customer retention mode, and they may be able to pull some strings.

If that’s not an option, consider a debt consolidation loan. If the average APR on your cards is 24% and you take out a personal loan at 12% APR — and immediately pay off your credit card debt — you’ll be left with a more manageable debt to pay off. It won’t solve your debt issue completely, but there is a time and place where debt consolidation makes sense. 

Consider a balance transfer credit card

Can’t sufficiently lower your interest rate? Consider a balance transfer, which lets you move debt from one credit card to a different card with a lower rate – sometimes even 0%.

Effectively, you are paying off one credit card with another. But if the rate difference is wide enough, it could save you money. Just make sure you get all the details before starting a transfer. Many balance transfer cards charge a transfer fee of 3% to 5%. And they may have limits on how much you can transfer.

While 0% interest sounds fantastic, only undertake a balance transfer if you are serious about paying down debt. Make sure you can pay off the balance during the 0% offer period. Otherwise, you’re just playing hot potato with your balance.

Step 6: Improve Your Spending Habits

Embracing a frugal mindset will reduce your spending and allow you to pursue your goals more effectively. Not sure where to cut? Start with the big stuff.

Save money on food each month

The average American spends 10% of their budget on food, one of the most significant categories after housing._[1] We have to eat, but do we have to pay so much doing it? Here’s how you can cut.

Stop eating out

Not only is eating at a restaurant more expensive, but it is also harder on your waistline. Meals at restaurants cost more and include larger portion sizes and more fat than the average dinner cooked at home.

Over 4% of the American budget (so 40% of total food spending) goes to food away from home. Eliminate dining out from your budget, at least until you are debt-free.

Avoid impulse buys in the grocery store

Before heading to your weekly grocery store shop, take the time to make a list. Check your grocery store’s online circular and take a look at apps like Ibotta, a free app that gives you cash rebates on grocery store purchases, to see what’s on sale. Then, build a meal plan and list around those items.

Once you’re in the grocery store, stick to your list! To avoid extra purchases motivated by hunger, have a snack before heading to the store.

Learn how to say “no”

Nights out on the town, drinks with coworkers, and shopping trips with friends are tempting. But when it doesn’t fit in your budget, you’re sacrificing your future for a little fun today.

Don’t be afraid to say “no” to any event you can’t afford. You don’t have to isolate yourself in your debt-free journey, just be willing to offer an alternative. Suggesting a game night or potluck at your place could mean more quality time with your friends for a lot less money.

Give up your expensive hobbies

Spending $100 a month on yoga classes just isn’t realistic when you’re hustling to get out of debt. Trade in your expensive hobbies for lower-cost options like free YouTube classes or a monthly book club.

Step 7: Increase Your Income

Frugal living is powerful, but it has a limit. You can’t save more than you make. So, to take your debt-free journey to the next level, it’s time to bring in some more dough.

Ask for a raise

If you’ve been working hard and providing value to your company, it never hurts to ask for a raise.

Don’t just drop the request in your manager’s lap though. Ask for feedback, develop your skills, and take on more responsibility. Along the way, proactively let your superiors know what you’ve accomplished. You want your manager to know you deserve a raise before you even walk through the door!

Start a side hustle

Commit a few spare hours in your week to something you’re good at, or a task you enjoy, that can be monetized online. Since the average person watches five hours of TV a day, I’m willing to bet you can make the time.

Related: 42 Legit Ways to Make Money Fast

Start a low-overhead online business

The internet has made it easier than ever to start an online business with close to zero up-front costs.

Set up shop as a freelance writer, proofreader, or virtual assistant, and offer your services to other companies who want outside help with hiring a permanent employee. You can work as many or as few hours as you want, with some people turning their businesses into six-figure, full-time jobs.

Get your first clients by reaching out to local businesses, posting about your new business on Facebook and LinkedIn, or listing your services on Upwork.

Putting It All Together

Whether you’re broke and have no money, living on a low income, or have bad credit, just stick to these steps to become debt free once and for all.

Once you have an action plan for how to get out of debt, achieving debt freedom just requires time. Stay focused on your goal, stick to a budget, trim fat from your spending, and find ways to bring in more income to speed up your journey. Just don’t forget to celebrate all the little wins along the way!

The post How to Get Out of Debt: A Step-by-Step Guide for 2023 appeared first on DollarSprout.

Since I don’t like the idea of owing anyone money, I do whatever I can to avoid it.

However, sometimes I have no choice but to take it on. For example, several years ago, my car was on its last leg and I financed a 2013 Nissan Juke.

At the time, I was working an entry-level marketing position and I didn’t have any extra money to put towards my car. I made only the minimum payments on my 48-month car loan until I picked up a freelance writing job for a local car dealership. Thanks to this side hustle, I was able to pay off my car loan in only a year.

If you’re struggling with debt and hoping to pay it off quickly, know that there are a number of realistic ways you can do just that.

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12 Steps You Can Take To Pay Off Your Debt Fast

If you want to pay off debt fast, it’s important to get motivated. Write down why you want to get out of debt. Maybe you’d like to save for a down payment on a house or put more money in your 401(k).

Or maybe you hope to pay for part of your child’s college education or travel more often. Hang whatever you wrote down on your kitchen fridge or bathroom mirror so that you have a visual reminder of your “why” to keep you motivated to reach your goal.

1. Add up your total debt

Gather your most recent statements for all of your credit cards and loans.

Then, make a list of all your debts and include the creditor’s name, total balance, minimum monthly payment, and interest rate for each one. Total all of your debts so that you know how much you owe and need to pay off.

2. Determine your debt payoff strategy

Once you have a list of all your debts as well as their minimum monthly payments and interest, you’ll have to decide whether you’d like to use the debt avalanche or debt snowball strategy to pay them off.

Debt Avalanche

The debt avalanche strategy aims to save you the most money in interest over time. With this strategy, you prioritize your debts with the highest interest rates. Here’s how it works:

Step 1: List your debts in order from highest to lowest interest rate.

Step 2: After paying the minimum balances on all your other debts every month, put as much extra money as you can toward your debt with the highest interest rate.

Step 3: As soon as you pay off the debt with the highest interest rate, focus on the one with the next highest rate. Take the extra money you used to pay off the first debt and add it to the minimum payment for this one until it’s paid off.

Step 4: Continue this process until all debts are paid.

Debt Snowball

With the debt snowball strategy, you’ll pay off your smallest debt first then apply the payments you were using toward it to pay for the next smallest debt. This strategy allows you to build momentum or “snowball” your payments as you pay off each debt. The debt snowball strategy works like this:

Step 1: Make a list of all your debts and order them from the lowest to highest balance.

Step 2: Put as much extra money as you can toward your debt with the smallest balance while paying the minimum balance on all your other debts every month.

Step 3: After you pay off your smallest debt, take the money you were using for that debt and apply it to the one with the next lowest balance. Keep paying the minimum on the others.

Step 4: Stick with this process until you’ve paid off all your debts.

If you want to save as much money as possible in interest on your debts, the debt avalanche may make the most sense. But if you’re feeling overwhelmed with your debt and need to celebrate milestones to stay motivated, the debt snowball may be a better option.

Related: How to Get Out of Debt: A Step-by-Step Guide for 2023

3. Create a livable but bare-bones budget

Making a budget is one of the best ways to get a handle on your finances, and a livable but bare-bones budget is a powerful tool than can help you pay off your debt fast. To create one, follow these steps:

Figure out where you’ve spent money in the past: Use your bank and credit card statements from the last few months to understand where your money typically goes. To do this, create categories such as food, restaurants, and mortgage and jot down how much you’ve spent in each category.

Get rid of non-essential expenses: Once you’ve categorized your spending, it’s time to cut non-essential expenses like morning Starbucks runs or your cable subscription from your budget. Non-essential expenses are anything you can live without.

List your new bare-bones expenses and add them up: Now, you’ll create a bare-bones budget based on the expenses you can’t cut such as your mortgage or rent payments, utilities, and groceries. This new bare-bones budget should leave you with more money to throw at your debt each month.

Keep in mind that sticking to a bare-bones budget is a temporary situation. Once you pay off your debt, you can add non-essentials back into your budget.

4. Credit card balance transfers

If you’re struggling with a lot of credit card debt, a credit card balance transfer may be a good idea. A credit card balance transfer is a type of debt consolidation where you transfer your high-interest credit card balances to a new credit card with a lower interest rate.

There are some balance transfer cards that offer a 0% APR for a limited time period so if you go this route, be on the lookout for these types of cards.  By transferring balances from multiple credit cards to one, you can benefit from a single manageable payment and save big on interest.

If you decide to use a credit card balance transfer to help you pay off your debt faster, make sure you understand all the fees that may be associated with it. Most cards have balance transfer fees that are between 3% and 5% of the transferred amount. This will increase the total balance you need to pay off.

Also, consider the length of time it will take you to pay down the balance. Let’s say you find a card with a 0% introductory APR offer for 15 months. If you don’t feel confident that you can pay off your credit card debt in 15 months, this card is probably not a good option as its interest rate will likely increase significantly after 15 months.

If you opt for a credit card balance transfer, don’t use the card for new spending as the 0% APR won’t apply to new purchases and you may dig yourself deeper into debt.

Related: Here’s What People Mean When They Talk About “Good Debt vs. Bad Debt”

5. Find extra money in your budget to put towards debt

Even if you don’t have a high income, you can find extra money in your budget to put toward debt using a few different tools.

Trim is an app that can help you negotiate your bills so you can save more money. With Trim, you can also cancel unwanted subscriptions and earn cash back while shopping.

Rocket Money is another app that can identify and cancel unwanted subscriptions and reduce your bills. It can also help you collect refunds for fees and outages and find better deals on the services you currently use.

6. Sell your stuff

It’s likely that you have stuff sitting around your house that you don’t need or want. If you come across a CD, game, book, or electronics item that you know you won’t use again, sell it on Decluttr. If you find any clothes that you no longer wear, you can use thredUP, Poshmark, or Tradesy to sell them.

Craigslist, Facebook Marketplace, and yard sales are other options if you prefer to sell locally. Once you sell your stuff, put the money you’ve earned toward your debt.

7. Find a side hustle

If you work a full-time job, figure out how you can use it to earn extra money. For instance, you may want to ask for a raise or take on extra shifts. If these aren’t an option, a side hustle or a job you can work in addition to your full-time job can be a great idea.

From blogging and freelance writing to renting out your car or starting a home bakery, there is no shortage of side hustle opportunities available. You can use your side hustle earnings to get out of debt fast.

8. Get a seasonal or part-time job

While a side hustle gives you the freedom to decide how much you want to work and earn, a seasonal or part-time job involves an employer making these decisions for you. If you prefer a seasonal or part-time job, retail stores, restaurants, and banks are good places to look.

By putting the money you earn from your seasonal or part-time job toward your debt, you can get out of debt faster.

Related: 16 Seasonal Jobs Hiring That Pay $10/hr or More

9. Use windfalls to pay down debt

A windfall is unexpected money you may receive. While it’s unlikely that you’ll win the lottery, there is a higher chance that a windfall like a tax refund, huge bonus, birthday cash, legal settlement, or large inheritance will come into your life.

Although it can be tempting to use this money on a dream vacation or new car, putting it toward your student loans, car payments, and mortgage will help you pay off your debts faster.

You can use part of the money to treat yourself and put the rest toward debt, or throw all of it toward your debt and use it as motivation to splurge once your debt is paid off.

10. Debt consolidation loans

A debt consolidation loan involves taking out a new fixed-rate loan and using the money from the loan to pay off one or more loans in installments over a set term. This strategy allows you to bundle your existing debts into one convenient monthly payment at a lower interest rate.

It may be an option if you have an overwhelming amount of debt and are not having any luck with the other strategies we’ve mentioned.

Related: Compare Debt Consolidation Rates 

11. Bankruptcy

If you are over your head in debt, you may want to consider bankruptcy. Chapter 7 can help you if you have little to no disposable income (money left over after you’ve paid your essential expenses and taxes).

During Chapter 7 bankruptcy, you sell most of your possessions so that you can repay your existing debts. While it can provide you with some relief from debt collectors, it may cause you to lose your home, car, or other important assets.

If you’re not eligible for Chapter 7 and earn a sufficient income, Chapter 13 may be a solution. It can give you the opportunity to make one consolidated payment towards your debts via a repayment plan that usually lasts three to five years.

You should understand that bankruptcy won’t help you with debts like student loans, child support, alimony, and tax debts. However, bankruptcy can take care of medical bills, credit card debt, and other unsecured debts.

12. Change your habits

Simple lifestyle changes can help you achieve a debt-free lifestyle. For example, if you smoke, quit and use the money you would’ve typically spent on cigarettes to pay down debt.

A pack of cigarettes costs between $4.50 and $12.50 depending on where you live. If you assume an average of $7 per pack, one pack a day could cost you over $200 per month. Imagine if you put that amount toward debt instead.

If you go out to lunch with co-workers every day, pack instead. Unsubscribe from promotional newsletters from your favorite stores if they tempt you to make unnecessary purchases. Think about the behaviors that got you into debt and change them to get out and avoid debt in the future.

Related: Should You Pay Off Debt or Save Money? Here’s How to Decide

Staying Motivated Is Key to Paying Off Debt Fast

If you find ways to keep yourself motivated throughout your debt payoff journey, you’re more likely to succeed. When you’re feeling like you want to give up, think about what your life would be like without your debt.

Make every effort to be patient, use the success of others you know as motivation, and reward yourself every time you pay off $500, $1,000, or more. A free debt tracking tool can also help you see how far you’ve come and motivate you to keep going.

Remember that nothing worth having comes easy and a debt-free lifestyle is no exception.

Related: Dave Ramsey’s 7 Baby Steps: A Simple Approach to Paying Off Debt

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