You’re in debt, but guess what: Most people you know are too. In fact, average credit card debt per household in the US is around $15K, while average student loan debt is around $32K. So don’t despair — you’re suffering in good company. Here’s how you can tackle your debt without letting it be a total life suck.
Buckle Down
We know that dealing with debt can dredge up all kinds of toxic feelings: stupidity, frustration, denial, etcetera, ad nauseam. The struggle is real, folks. Melanie Lockert of the blog Dear Debt recommends taking a good, hard look at your debt situation to evaluate what you want out of life. “Debt is like an old ball and chain that weighs you down and limits your dreams and possibilities,” she says. “By working hard now, you will save your financial life later.” Look your debt squarely in the eye and come up with an actionable game plan to pay it off.
Do the Math
If you have different kinds of debt (e.g., student loans and credit card debt), you’ll want to figure out which to tackle first. How? Start by taking a close look at the interest rate, the total amount owed, and the term limit to pay it off. Also, do the math to figure out how much interest you’re paying each month, as that’s money down the drain. Amanda L. Grossman of Frugal Confessions explains that managing debt early is important because doing so has a compounding effect: “By stopping the flow of interest out of your lives (what it costs to service your debts) earlier rather than later, you potentially increase the amount of interest flowing back to you.”
Pro Tip: If it’s been a while since you’ve visited your debt, be sure to double-check the loan amount to see if any of the terms have changed. If you find that the interest rate has shot up, consider tweaking your game plan.
Consider the Options
The trick to paying down debt is squashing interest before it grows into a money monster. Twenty-eight-year-old Lance Cothern of Money Manifesto writes, “People should pay off debt with the highest interest rate first to get the biggest bang for your buck. But if you’re easily discouraged, paying off the smallest balance first may work better for you.” Paying off debt is like working a muscle — unless you’re already a seasoned frugalista or hardcore saver, you may get discouraged if you take on too much.
For student loans, the good news is that there are quite a few options. Depending on how much money you make, you may qualify for a Pay as You Earn Plan, in which repayment is capped at 10 percent of your discretionary income, and any remaining balance may be forgiven after 20 years. There are other variations of this plan too, so see if your situation meets the criteria. If you work in the public sector for a nonprofit or the government, you may qualify for the Public Service Loan Forgiveness Plan. You can get more deets and use the repayment estimator here.
Stick to It and Buddy Up
Congrats! You now have a focus and a game plan. You just have to stick to it. No problem, right? Well, let’s be realistic. Paying down debt requires a ton of dedication and persistence. There are going to be times when you fall off the wagon, but don’t be too hard on yourself. It happens. Just get back on and keep going. Tell your friends why it’s important for you to do this. “Even if you think all your friends are not struggling, you don’t know their real story,” says 26-year-old Zina Kumok of Debt Free After Three, who paid off $28K in student loans in three years. Your friends are most likely struggling in a big way too. It helps to buddy up with them and act as each other’s cheerleaders and confidants.
Get a Side Hustle
Use your talents to rake in extra cash on the side. You can also use your side hustle to explore something fun you don’t usually get to do during your day job. Got mad creative skills? Offer your services on Fiverr or 99designs, or sell your handmade wares on Etsy or Big Cartel. If you love to drive, become a Lyft driver. Are you a master at Ikea-furniture assembling? Then pick up gigs on TaskRabbit. If you love animals but your apartment doesn’t allow pets, take on dog walking.
Turn Decluttering into a Mini Cash Cow
Decluttering can help you simplify your life and figure out your values. You’ll find that you have more space than you need, and getting rid of stuff you no longer use is liberating.
Be a Couch-Change Scrounger
You don’t have to declare a full-blown war on spending, but by picking and choosing your battles, you can chip away at that mountain of debt like a pro. The three biggest money sucks are housing, transportation, and food. If you can save money in one of these three areas and still live within your means, you’ll be in good shape to throw a sizable chunk of change toward debt repayment. It all comes down to knowing yourself and what gives you joy in life, then spending your money accordingly.
For instance, if you like where you live and don’t want to move, consider getting a roommate or converting part of it into an Airbnb rental. Spending less on transportation by passing up car ownership and taking public transit or Zipcar instead could save you thousands a year. And swapping the pricey satellite TV for a less-expensive Hulu or Netflix subscription? That’s $50 to $100 in savings per month right there. Small changes add up. If you normally spend $10 for lunch during the week, brown-bagging could save you $200 each month. Or skipping that daily latte run ($4/day) will put a cool $1,460 per year in your pocket.
Revel in Frugal Decadence
You can still have a great time by engaging in what Amanda of Frugal Confessions calls “frugal decadence,” which is enjoying the now without paying full price so that you can save for the future. The possibilities are endless when it comes to living creatively and designing your life on the cheap. We city dwellers have it good because there are plenty of resources at our disposal. Become an expert on the best drink deals around town; get the most bang for your buck at sample sales; take advantage of free concerts and screenings; join a time bank; or cancel your fitness membership and turn your city into a gym instead. Case in point: simply noshing with your pals at a restaurant that offers a weekend happy hour — and not going overboard — could save you $15–$20 a meal. Canceling an inexpensive gym membership ($30/month) will make you $360 per year richer.
Treat Yo Self
The path to paying down debt can be challenging, so be sure to celebrate milestones along the way. You don’t have to spend a ton to celebrate (that would be defeating the purpose, wouldn’t it?). Treat yourself to small rewards like cheap eats at your favorite taqueria, or indulge in a sweet treat at your favorite ice creamery.
Bottom line: if you buckle down and face your debt now, you’ll be in stellar financial shape down the road. And tackling debt doesn’t have to cramp your style. By taking steps to pay it down now, you’ll achieve financial savvy to do the all the things you’ve always wanted to do.
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