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How to get out of debt and save thousands with 9 simple tips

steps-to-get-out-of-debt

Let’s face it, debt is stressful. The sooner you begin to make changes to get out of debt, the better your quality of life.

In Q2 of 2020, the total household debt had decreased by $34 billion to 14.27 trillion according to the according to the Federal Reserve.

What a difference 2 years can make.

Fast forward to Q2 of 2022, the total household debt rose $312 billion to reach $16.15 trillion, according to the latest  Quarterly Report on Household Debt and Credit by the Federal Reserve.

The report noted that mortgage balances is the largest component of household debt at $11.39 trillion as of June 30.

Credit card balances saw a $46 billion increase since the first quarter.

Auto loan balances increased by $33 billion in the second quarter, and student loan balances remain roughly unchanged at $1.59 trillion.

Inflation is running at four-decade highs, prompting the Feds to continue increasing interest rates in an attempt to bring inflation under control.

Change is in order for U.S. consumers. Take action to carry as little debt as possible.

How to get out of debt

Your first thoughts about a budget may not be pleasant but hold on, creating a budget does not have to be difficult. Having a budget plan will help you decrease debt.

1. Keep track of expenses – write it down

Having a visible way to see where your money is going and what you can cut back on is key to get out of debt.

Basically, you want to include everything you spend money on in your budget. You may be surprised to see where your money is going and how you can save by cutting out frivolous items.

  • Begin with your fixed expenses. Fixed expenses are your household necessities such as mortgage, rent, utilities, car payment, and insurance.
  • Next, tackle your variable costs. Variable costs can change from month-to-month such as groceries, cell phones, credit card bills, entertainment, and clothing.
  • Now, create a reserved budget. Reserved budget would be for things like dining out, vacations, hairstylists, haircuts and even pampering needs. Be realistic and set reasonable constraints on these items.

There are many budgeting Apps that can help you keep track of your budget. I prefer to write things down in old-fashioned book form. You can pick-up a budgeting planner like this $6.99 one from Amazon that allows you to write down daily, weekly and monthly expenses.

2. Cash, Cash, Cash

Using cash instead of credit cards and even debit cards can help you save money. Put your credit and debit cards away for a while and start using cash.

The act of using cash makes you more aware of your spending habits. Pulling out a credit card can give you a false sense of not having just spent money. Credit cards may also give you instant gratification but when you face the bill along with interest charges that gratification is long gone.

If you use a credit card try to carry one primary credit card and use it only for emergencies only such as car or home repairs.

Put your debit card away and you’ll instantly see how much money you are really spending. Even though you have the cash in your checking account, actually forking over cash when making purchases will open your eyes to anything you really don’t need.

3. Tackle credit card debt to increase your credit score 

Stop using credit cards unless you plan to pay them in full each month. If you continue to use credit cards while attempting to get out of debt, you’re setting yourself up for failure.

Getting and remaining out of debt involves some behavioral changes. Stick to your cash and leave the credit cards at home. Pay more than the minimum due on credit cards.

There are financial risks when paying just the minimum payment on credit cards. One of the main risks is never getting out of debt plus paying just the minimum makes you look risky to other lenders.

The lower your balance, the higher your credit scores. Amounts owed on revolving debt like credit cards makes up 30 percent of your credit score.

Paying off just one credit card will improve your credit scores as long as you don’t create new debt.

Interest rates for mortgages, vehicles and credit cards are on the rise. But having a good credit score combats higher rates because you’ll get the lowest interest rates when seeking credit.

You don’t want to be chained to credit card debt year after year.

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For example, here is a credit card statement where the total balance is $2720.12. The minimum payment is $54 and the APR is 15.24%. Assuming no further charges are made to the credit card, it would take 21 years to pay the balance in full when paying just the minimum payment of $54. Not to mention over $5,936 would be paid in interest.

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Photo Credit: Fivecentnickel.com

Bumping the minimum monthly payment up to $95 the balance would be paid in full in 3 years which would save $2,525. But that’s still too much in interest. Add as much extra cash to your credit card payments as possible. You’ll save thousands of dollars in the long run.

Another way to tackle credit card debt is through debt consolidation loans. Lenders like SoFi Bank offer personal loans from $5k-$100k with low rates that can be used for debt consolidation. SoFi personal rates range from 7.99% APR to 23.43% APR depending on your credit score and other factors.

Check your rate without impacting your credit score. Plus, you will earn a $300 bonus after your loan funds. If you lose your job, SoFi can help modify your personal loan payments and help you find a new job.

If you’re wondering how debt consolidation impacts your credit score, you will be pleased to know debt consolidation will likely help your overall credit profile and scores over time.

Combining multiple credit card debt balances into one new loan — is likely to raise your credit scores over the long term if you use it to pay off debt.

You might see a slight decrease in your score after it appears on your credit report, but that’s okay. As long as you make payments on time and don’t rack up more debt, your score should go higher.

4. Cancel unwanted subscriptions

It’s easy to forget about subscription services you no longer use. Sometimes it’s just too many to keep up with. Whether it’s video streaming subscriptions, apps on your cell phone, gym membership, online data storage, cell phone service, or just old subscriptions, stop paying for services you don’t use or need.

Money can quickly add up for unused services that could be going to decreasing debt. Companies like Trim will help you analyze spending patterns to find ways to save you money and negotiate cable, internet, phone, and medical bills, as well as cancel old subscriptions.

5. Switch to Free Banking

If you’re paying checking account fees, prepaid debit card fees, or check-cashing fees ⎼ STOP! There are numerous banks that don’t charge monthly service fees. Online banks are a good choice for free checking accounts.

People unable to open a regular checking account due to a poor banking history should check out checking accounts for bad credit to get a fresh start. Monthly service fees can be as much as $205 a year!

6. Refinance student loans to get a lower rate

The Biden Administration’s move to cancel up to $20K for qualifying borrowers of federal student loans in August 2022 has run into a few road bumps. There have been several lawsuits that aim to either alter the program or shut it down completely.

Some of those lawsuits have already been thrown out but it has not stopped other groups from attempting to halt the Biden administration’s attempt at student loan forgiveness.

Recently, a small-business advocacy group, Job Creators Network Foundation, filed a new lawsuit seeking to block the Biden administration’s efforts to forgive student loan debt for tens of millions of Americans.

Most federal student loans are eligible, including:

  • Undergraduate and graduate direct loans
  • Parent PLUS and grad PLUS loans and consolidation loans
  • Federal Family Education Loan program loans

But according to the U.S. Department of Education, more than 7 million student loan borrowers could miss out on federal forgiveness program. Nearly 20% of qualifying borrowers may not take the necessary steps to get that relief but the other 80% may benefit from student loan refinancing to get lower rates and save thousands of dollars.

Perfect credit is not required to refinance student loans. You could get a new student loan rate as low as 3.24% APR. With steep rates on your federal and private student loans, or Parent PLUS loans, it’s easy to save money by refinancing to a SoFi student loan. SoFi student loans do not charge application or origination fees plus, there are no pre-payment penalties.

7. Settle collection debt

Save money on debt that may be in collections. When you have overdue debt with a creditor, whether it’s an unpaid credit card balance, medical bills, or anything else, you may be in the position to settle the debt for pennies on the dollar. Always make your requests in writing to keep track of negotiations.

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Collection agencies stand to make huge margins on purchased debt, so don’t be afraid to offer less than 25% of what you owe. Even if you offer to pay 25%, they’ll make a profit. The older the debt, the less you should offer for settlement.

8. Temporarily join the Gig-Economy

Extra cash is the quickest way to get out of debt. Temporarily join the gig economy to get out of debt sooner. Here are several at-home gigs and out-the-home gigs you can temporarily do to make extra cash.

Get paid for taking Surveys

  • KashKick – Get paid for all the fun things you’re already doing online. From answering surveys to watching videos, there are always easy unlimited tasks for you to choose from.
  • Swagbucks – Sign-up and get a free $10 bonus right out of the gate. Earn points or Swagbucks by taking surveys, watching videos or searching the site. 
  • Survey Junkie – Share your opinion to help brands deliver better products & services.
  • Inbox Dollars – Get paid for reading emails.
  • Opinion Outpost – Get paid for answering surveys.
  • Ebates – Earn cash back on your purchases. Get a $10 bonus for joining.

Get paid to rent something

  • Rent your truck – If you have a pickup truck, cargo van, or box truck market yourself as a mover, delivery driver or helper. Dolly on demand has $30 an hour moving jobs (helper jobs) for people that can lift least 75 lbs. If you don’t have a truck they have jobs (hand jobs) for $15 but you must be able to lift 75 lbs.
  • Rent yourself as a friend – Earn money to be someone’s platonic friend.
  • Rent yourself as a bridesmaid – Earn money to be a bride’sbridesmaid. Attend a movie or concert with someone that is willing to pay for a temporary hang-out friend.
  • Rent a room – Earn extra money with your home and rent a room.

Get paid for Rideshare and Delivery

  • Drive for Lyft – Earn a $300 Bonus After 100 Rides When You Become a Lyft Driver. Terms Apply!
  • Drive for Uber – As an incentive for signing up Uber guarantees a certain amount of money (depending on the city) for your first 200 trips. For example, if you are driving in Atlanta you could earn at least $2,200 for your first 200 trips.
  • Doordash – Earn money on the side to deliver food from local restaurants.
  • Instacart – Become a shopper and make up to $1,000 when you complete 30 batches in 30 days. With Instacart you can choose between an in-store shopper (no vehicle needed) or a full-service shopper.
  • Postmates – Take home 100% of what you earn every time you complete a delivery. Earn instant cash or opt for weekly deposits. Get free weekly deposits or cash out instantly anytime you want.

9. Balance your Checkbook

Not surprisingly, many Americans don’t balance their checkbooks. What checkbook you say? See what I mean. Online and mobile banking is so convenient but it does not necessarily mean you are more informed about your accounts.

Good old fashion basic math skills can save you a lot of money. Bank overdraft fees are about $35 these days. Don’t give the bank an unnecessary bonus. Balancing your checkbook whenever you transact business using your checking account (writing checks, ATM withdrawals, bank service fees), will save you money.

Final thoughts

You never know when you’ll need money outside of your budget. Auto repairs, emergency travel, plumbing problems, a new furnace. You name it. The money you save by having a budget and sticking to it should go into a savings account. Having a high-yield savings account not only gives you peace of mind but also keeps you from incurring additional debt when an emergency occurs.

Just as you have a budget, building a safety net where you pay yourself first can keep you out of debt. Start with at least 10% of your income and you may even want to include it in your fixed expenses budget as a line item.

A good rule to follow is to have at least 3 to 6 months of living expenses saved for emergencies and even temporary unemployment.

The amazing thing about saving money is that the more you save, the more you want to save. You become accustomed to seeing that money in your savings account increase each month.

Banks aren’t paying much interest for savings accounts. In fact, the national savings account rate is around 0.17 percent. But online banks like CIT Bank offer higher rates.

Current banking has a 4.00% APY savings rate for up to a $6000 balance that’s 60x higher than the national average!

When you become debt-free you take a major step to improve your quality of life.

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