10 Ways to Get Out of Debt & Stay Out of It
With graduation season in full swing, many young adults are graduating from college and other institutions of higher learning. That’s cause for celebration, but many of these graduates will be leaving school with both a diploma and debt.
The average college student will graduate with $29,800 in debt this year. Add on a few years, debt from buying a home and car, and other miscellaneous debt and now we’re looking at years to pay it all off. In fact, more than 2 out of 3 US adults don’t know when or if they will ever be debt free.
That doesn’t have to be you. Take a look at these 10 foundational money management skills to get out of debt and stay out of it.
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1 | Prioritize getting out of debt
People with good financial health prioritize getting out of debt ASAP and will do almost anything to do that. Compare this to people living with debt as an everyday fact of life. They’ve gotten used to having it, and everyone else they know is in debt.
For some people, they’ve been in debt for so long that paying it off seems like something a long way down the road if ever. It’s easier to manage their lives with debt than to tackle it.
If you recognize yourself as someone accepting of debt, now is a good time to jumpstart your efforts to become debt free. A 10- or 25-year student loan and a 30-year mortgage should scare you.
Debt can affect your ability to get a mortgage, the interest rates you pay when you borrow money, your and your family’s quality of life, and more. Do you really want that?
No one knows what the future holds. Give yourself the best chance to live your best future life by being debt free.
This might mean a radical shift in the way you live life. All your extra money and effort will go towards your debt. You may need to consolidate your loans.
You may have to take on extra jobs to make pay things down faster. The other tips below will help you prioritize getting out of debt as well.
2 | Live frugally
Living frugally will help you stay on track with your financial goals including being debt free. Frugal living is a way of life focused on spending consciously only on what you need and making to most of what you have.
It’s not being cheap or depriving yourself beyond what’s necessary and healthy. You can still live a comfortable life being frugal. Some ways to do that:
Cut back on entertainment and hobbies that cost money. Substitute free ones in their place.
Cook meals to eat at home and bring lunch from home on workdays. Avoid eating out.
Plan your meals in advance and cook enough for leftovers for the next few days. This helps to avoid the temptation of buying pre-cooked to-go meals when you’re crunched for time.
Buy only items on your grocery list when grocery shopping.
Repurpose everything you can around the home.
The dollars add up and you’ll find yourself with more money than you expected at the end of each month.
3 | Keep a budget
Keeping a budget is essential to getting out of debt and staying that way. You have to know how much money you’re taking in and how much you’re spending each month.
Without knowing these things, you’re unable to calculate much you can pay towards your debt each month, which is necessary if you want it gone sooner.
Budgeting makes people say, “ugh, I don’t want to do it!” But can you imagine a government or any company not knowing their finances? You know they’d never stay afloat.
The same is true for individuals. There are lots of different types of budgeting methods and tools out there to help.
My favorite budgeting program is You Need a Budget (YNAB). It requires a small recurring monthly subscription fee. If you prefer, there are free apps such as Mint and PocketGuard. There’s always pen and paper as well.
4 | Pay off credit cards each month
Pay off your credit card in full each month. Carrying a balance on your credit card will result in having to pay more in the future due to accruing interest.
You’ll also lower your credit score, which can have negative consequences on your finances later on. If you’re having trouble paying off your credit cards each month, try a few of these things:
Pay for everything in cash. It’s a pain to go to the ATM to get cash and it’s even more painful to part with cash. Physically handing over cash that you pulled from your wallet is harder than swiping a credit card. You’re likely to buy less when you have to pay cash for it.
Change the due date of your credit cards. You can change the dates to align with when you get paid. This way you’ll have money in your account and don’t have to worry about an overdraft or late charges.
Cut back on purchases until you know you can pay for them. If you have some financial cushion, then you’ll already have money in the bank to cover the things you’re buying this month. When the bill comes, you’ll know exactly what you purchased and have the money to pay for it.
This will save you a lot of worry about meeting bill due dates. You’re living within your means.
5 | Have an emergency fund
One reason that people don’t go back into debt is that they have an emergency fund to keep them out of it. It’s just as it sounds. It’s a stash of cash that you keep as spend only in emergencies.
It’s hard to plan for everything that couldn’t go wrong in life. You likely don’t expect your car to breakdown or have to take several weeks off of work because of an injury, but these things happen and they cost money. An emergency fund will get you through those hard times.
If you don’t already have an emergency fund, save what you can each month. Saving even $50 a month amounts to $600 after a year and even more if you have it in an account that earns interest.
Then work on increasing the portion of your income that you can save until you have about a 3 to 6 months of your living expenses covered. You’ll breathe a sigh of relief after fully funding your emergency fund.
6 | Become a ruthless shopper
Debt-free people are ruthless shoppers. They buy only what they need and try to get the best prices for it. No more spontaneous trips to the grocery store or internet browsing to shop if that leads to unnecessary spending.
Plan what you need to buy before purchasing it and then buy only that. Some ways to become a ruthless shopper:
Wait for sales. If an item is not a necessity, wait for it to go on sale before purchasing it.
Take advantage of return policies. If you do buy an item and don’t use it after a few weeks, return it. Most stores let you return items within 30 days of purchase.
Buy things in season. This is true for produce like fruits and vegetables as well as large home purchases like refrigerators and washers and dryers.
7 | Avoid more debt like the plague
Do you know that uncomfortable feeling that’s fueling you to get out of debt? That same uncomfortable feeling will cause you to avoid it more debt like the plague. Some ways to do that:
Spend less than you earn. This is one of the most basic and foundational tenets of personal finance. You always be in the black if you keep your expenses lower than your income.
Let your partner and family know your plans. Surround yourself with people who will support you and not throw you off track.
Keep yourself motivated without spending money. It’s easy to want to treat yourself or let spending slide when you’re stressed or even when you’re celebrating something great happening.
Keep reminding yourself of how uncomfortable it feels when you’re in debt and how good you’ll feel being out of it. Find other ways to relieve your stress or celebrate.
8 | Avoid lifestyle inflation
I don’t know many people who want to live like a college student for the rest of their lives. It’s not healthy to live off of instant noodles or microwavable meals all the time. You might want to turn on the heat rather than freeze through the winter. Some lifestyle inflation is expected with adulthood.
It’s the grander things that are unnecessary. A place of your own might mean paying higher rent and all the utilities by yourself. If you lived with roommates in school and you’re not married with a family, try continuing to live with roommates when you’re out of school.
It’s not that you can never have finer things, just that they have to be put on the back burner while you pay off debt.
Related post: How to Fight Lifestyle Inflation
9 | Believe in patience and delayed gratification
We live in an era that promotes instant gratification. Amazon has one-day shipping and even same-day delivery in some places. Email and texts can be read and answered immediately.
Paying off debt is the opposite of that. You’re playing a long-game that requires you to slowly chip away at your debt. Your reward of being debt-free might be years down the road. You’ll only get there with patience and the belief that something better is coming along, which it is.
If you’re reading this, then I know you’re not the type of person to throw up your hands and give up. You’re here because you’re tired of being in debt and already took some action to do something about it.
Give yourself the additional benefits of time and delayed gratification to see you through to meeting your goal.
10 | Set goals
Speaking of goals, debt-free people set financial and life goals and use them to guide their decision-making. The goals keep them motivated as they inch along making progress towards them.
When the opportunity comes up to spending money unnecessarily, they might ask “can I afford this?” and “will this bring me closer to my goals?” It’s not easy to say no to going out or taking a vacation when everyone else is doing those things.
It’s hard to wake up early to put in extra hours at a job on the weekend for more pay. Their goals give them the motivation to make better financial decisions and move forward towards debt-free living.
Whether you’re a new college graduate or an older adult who is struggling with debt, the above skills and habits will set you up on the path to becoming debt-free and staying out of it for good. If you have more tips, I’ve love to hear them!