Got Debt? Here’s How You Can Deal With It.

If you have debt, you’re not alone. Not by a long shot.

The average household with a credit card has over $8,000 in credit card debt. And the U.S. as a whole totals nearly $14 trillion in consumer debt, including mortgages, auto loans, credit cards and student loans.

But just because everyone else has it, doesn’t mean it’s a good thing (or healthy for your financial and mental wellbeing, for that matter).

If you currently hold debt, it’s not something to be ashamed of or hide from, but it is something you want to actively working towards eliminating. In this post, I’m sharing six totally manageable steps to help you get out of debt and closer to financial freedom (and an update at the end on our own debt situation).

1. Figure out how much you owe.

The first step is to figure out what your debt is. Too often, we feel overwhelmed by debt and avoid facing the reality of our situation. If you want to pay off your debt (and get rid of the associated stress and monthly payments), you’re going to have to face the facts of your situation and take a close look at the amount of debt you currently have and your current living expenses.

Understanding Your Debt

First things first, you want to get a picture of how much you owe, who you owe it to, and how much it’s costing you.

To do this you’ll want to make a table, either on paper or in an Excel sheet or a tool like AirTable. Go through each of your credit cards, loans, and things in collections and make columns for your remaining balance, the interest rate, your current monthly minimum payment, the due date, the type of debt, and who you owe it to (plus a payment link) .

Seeing it laid out like that can be stressful, but the clearly-displayed information will come in handy when making your payoff plan.

Current Balance	Interest Rate	Min. Payment	Due Date	Type	Who?
$1,500	17.5%	$120	October 12	Credit card	Southwest Card

Your Living Expenses

Next, you’ll want to take a closer look at your monthly expenses and how that compares to your income. If you don’t already track your spending through YNAB, Mint, or some other tool, you can pull your bank and credit card statements from the past couple of months and do your best to piece together a picture of your spending.

This step is important for two reasons. First, it’s to assess if your current spending levels are causing you to go more and more into debt each month by living outside your means. If that’s the case you’ll need to have a more extended conversation with yourself about lowering your expenses and your relationship with money.

Second, having this blueprint of what you’re spending money on will help you identify funds you can redirect to debt payoff when we get to step four.

So, if you’re serious about paying off your debt and living a debt-free life, take a break from reading this article to complete step one. Come back once you’ve figured out where you stand. I’ll wait.

Back? Great! I’m so proud of you! Having the courage to face your debt head-on and take stock of what you owe can be difficult, but it is so incredibly important to making the changes that will let you live the life you want. You’ve taken a big and important step already!

2. Pick your payoff method

Okay, next up is picking your payoff method. In the world of personal finance, there are typically 3 methods of debt payoff: The debt snowball, debt avalanche or stacking, and debt consolidation. We’re going to go through them one-by-one so that you can decide which one will work best for you.

Debt Snowball

The Debt Snowball method is a debt payoff strategy popularized by Dave Ramsey, and many folks swear by it. If you are using this method, you’ll list your debts in order of smallest to biggest. You’ll make your minimum payments on all of your debts to avoid any late fees and negative effects on your credit score, but you’ll throw all of your extra cash at the debt with the smallest balance. Once you’ve paid off your smallest balance, that minimum payment and any extra cash now gets thrown at the debt with the next smallest balance.

While this strategy may not make sense if you are looking at things from a pure numbers point of view, it takes advantage of the psychology of motivation. You’ll be able to see and feel your progress faster, which is likely to inspire you to stick with it and tackle your debt more aggressively.

Debt Avalanche

The debt avalanche strategy is similar to the debt snowball method in that you will pay the minimum balance on all of your debts, but rather than throwing all of your extra cash to the account with the lowest balance, you throw your extra cash at the account with the highest interest rate first. Once you’ve payed off your debt with the highest interest rate, you’ll transition the funds from that minimum payment and your extra cash to the balance with the next highest interest rate, and so on.

This method will save you money and time, as more of your cash will be going to the principle of your debt. However, you may feel like it takes longer to see progress which might cause you to feel less motivated to stick with your payoff plan.

Debt Consolidation

If you have a lot of debt, it might be worth it to look into debt consolidation. Depending on your situation and your debt payoff timeline, this might look like a personal loan with a lower interest rate, or a balance transfer credit card with a 0% interest intro period. If you’re using a balance transfer credit card, be sure to read the terms carefully — some credit cards offer 0% interest for the first year or so, but that term doesn’t apply to balance transfers, and you may get hit with high interest there. So pay close attention.

Consolidating your debt can save you a lot of money in interest and therefore speed up your debt payoff timeline. But it can also seem more overwhelming because you’ll see your total debt in one balance rather than broken up over numerous cards and loans. The even bigger danger with debt consolidation is that if you haven’t adjusted the spending behavior that may have gotten you into consumer debt in the first place, you could just be opening the door to more debt by consolidating your credit card debt and therefore opening up your credit cards that had previously been maxed out or close to maxed out of their spending limit.

If this is something you are worried about you can call each of your credit card companies and ask if they will lower your interest rate, as this may save you a few percentage points on each. It won’t be as much as consolidating, but it’s still a good idea to do no matter which payoff method you’re using.

Choosing your debt payoff method is a personal choice and will depend on the way you think, your relationship to money, and your motivation. There is no right or wrong choice, no matter what the numbers on paper may say. The right choice is the one that will work and that you can stick with. 

3. Automate your debt payoff method

Now that you’ve chosen your payoff method, it’s time to automate it. You’ll want to set up auto pay for each of your minimum payments to avoid late fees and make sure you’re making progress. If you already know you can afford to put an extra $50 or $100 per month to your debt payoff, add that amount to your auto payment on whichever balance you are targeting first (the smallest balance if using the debt snowball, or the highest interest rate if using the debt avalanche).

Making your payoff plan automatic ensures that you’re sticking with your plan, and since the money will be automatically transferred from your account, it takes away the decision-making process and the risk of forgetting or rationalizing your way out of what you’ve planned to pay.

4. Find extra funds

If you’re serious about crushing your debt, or as you get excited seeing the progress you’re making, you may want to find extra funds to attack your debt balances. You can do this in two ways: cut current spending or earn additional income. I suggest a combined approach.

By this point you should be tracking your spending using some form of budgeting app to make sure you’re spending is in line with your income and your debt payoff obligations. If this is the case, run through your categories from the previous month and pick at least 2 or 3 categories that you think you could lower. This might be subscription services, dining out, groceries, or clothing.

Choose a few categories to cut this month and keep track of the savings you make in those few categories, then use that money to pay off more debt. If you can eliminate or lower a monthly bill, great! Now use that monthly amount towards your debt payoff.

The other way to aggressively payoff debt is to earmark any extra income for making additional debt payments. This could mean birthday money, cash your neighbor paid you for dog sitting, a tax refund, or holiday bonus. Using these extra funds to turbocharge your debt payoff is a great way to spend that money.

5. Maintain motivation

If you’re paying off large amounts of debt and have a long road ahead of you, it can feel demoralizing at times. It’s important to maintain motivation on your debt payoff journey, so here are a few suggestions:

Visually track progress

Seeing the progress you are making on your debt pay off journey can be a big motivator. Hang your payment tracker on the fridge or over your desk; basically, just put it somewhere that you will see regularly. If your partner or a friend is also trying to pay off debt, you can even create a shared spreadsheet so that you can be motivated by each other’s progress (be careful of the comparison trap, though — they might be paying off things at a faster rate than you, and that’s okay. Your debts are different).

Celebrate the smaller milestones

When you’re on a longer debt payoff journey, it’s important to celebrate milestones along the way to keep you motivated. Here are some small things you can celebrate:

• Setting up automatic payments on all of your accounts
• Your first $1,000 paid off
• The first balance you eliminate
• The first interest rate you successfully negotiate down

Designate markers for your journey and be sure to appreciate reaching them (just don’t break the bank with your celebrations!).

Set specific challenges for yourself

As humans, we like a good challenge. One way you can take advantage of this is by regularly creating challenges for yourself to turbocharge your debt payments. This might mean setting a challenge to find an extra $100 this month to put towards your debt. Or doing a “buy nothing” week or a “buy nothing” month in a specific category and using the savings for your debt. It might mean seeing how many thoughtful and creative gifts you can come up with for the holidays to save money. Get creative, and tell someone else about your challenge to add some additional accountability (remember that friend from earlier?).

6. Stay out of debt

It’s super important to also address what caused you to go into debt in the first place. Some debt may not require any kind of examination of your relationship with money, like medical debt.

But if you’re getting out of credit card debt that was caused by high spending, you’ll want to make sure you’re also addressing the habits that got you into debt in the first place or your success will be short lived and you might just end up back where you started. Make sure to live within your means, and think critically about if your spending is aligning with your values and the life you want to live – not just in the moment, but down the road.

My Debt Journey

My wife and I aggressively paid down around $15,000 in debt that we had accrued during a really rough year. You can read about that here! Since then, we’ve also paid off both of our car loans.

On the flip side, we have also accumulated more debt through our mortgage and a 0% interest home improvement credit card that we used to cover our very expensive new hurricane windows for our house.

We could have cash-flowed this update, but it would have meant pulling money out of investments that were earning money. In this case, since the windows came with a two-year 0% interest rate, it made more financial sense to keep the money invested and pay off the balance over the two-year interest free period. We have our auto pay set up so that we’ll pay off the balance a few months before that period is up, just to be on the safe side.

Once we get rid of the PMI on our mortgage, we won’t be paying it off aggressively (right now we have twice-monthly payments set up). I don’t mind having mortgage debt and as a rule, I don’t worry too much about aggressively paying off debt with an interest rate of less than 5%. Since money invested in the stock market will earn an average of 7% annually, my money will likely be better off invested and earn me more than I’ll be charged in interest. This will also be a personal call, because some folks prefer that pure, unadulterated, totally debt-free feeling.

I also recently took out my first student loan since I started grad school this semester (as an undergrad, my RA job and scholarships covered my cost of school). This was another instance where I could have not taken out the loans, but doing so let me keep more money invested and borrow the money while the interest rate was 0%. I plan on paying off this loan before the start of the next fall semester and paying for the second year of my program in cash. My original plan was cash-flowing the entire program, but since we ended up buying a house sooner than we expected (and making quite a few updates) this method gave me more flexibility with my cash and didn’t cost me anything extra.

Understanding and managing your debt can be overwhelming, I know! But it can also help you feel much more in control of your financial life, and that feeling is one worth pursuing.