Money Smarts Blog

If you're struggling with a lot of debt or caught in the cycle of using payday loans to make ends meet, it can feel like there's no hope to pay it off. But you don't have to carry high interest, high payment debt forever. No matter how big your debt struggle, there's an option for you.

Here are some ways you can start fighting your way out of debt:

Option 1: Meet with an accredited debt counselor

Working with an accredited debt counselor is one effective way to get your finances on track when you feel overwhelmed with debt. A reliable counselor will work with you to organize your accounts, create a budget and work out a plan to manage your debt and spending moving forward. They may even help you negotiate the terms of your loans or credit cards to make payments more manageable.

Working with an accredited counselor can certainly help you manage your debt, but it does come with a downside. These services often cost money. If you’re struggling to make ends meet already, the thought of forking over the little money you do have just so someone can tell you how to spend it might seem a little crazy.

The good news is that anything a debt counselor can help you with, you can't do yourself.

Option 2: DIY your finances

Getting your spending under control and getting out of debt involves some will power and honesty, but it’s absolutely possible to do it all by yourself.

Start with the obvious:
The very first thing you must do to get out of debt, is stop creating it. Stop using credit cards and don’t take out any more loans. If access to your credit cards makes using them too easy, take them out of your wallet.

Then create a budget:
When it comes to organizing your financial life, a budget is essential. The first thought most people have when budgets are mentioned is a boring, complicated spreadsheet. But that doesn’t have to be the case.

All you really need to have a successful budget is an honest account of how much money you earn, how much money you spend, and what you spend it on. Once you have that figured out, you can set limits for certain expenses – like groceries, entertainment etc.

The even better news is you don’t have to create your own budget spreadsheet to get started. Our friends at GreenPath Financial Wellness have a Home Budget Analysis calculator that makes finding opportunities to improve easy. (Or download one of ours: We have an easy one or an even easier one!)

Make changes where you can:
You’ve stopped using your credit cards, and you have your spending and expenses figured out. Worst case scenario, you may have discovered that you’re in the hole every month and spending more than you bring in. Best case scenario: you’re spending exactly what you earn and ending up at a $0 balance after all your expenses.

Whichever situation you’ve found yourself in, you’re going to need to come up with some extra cash if you ever plan to pay off your debt. Now it’s time to look some ways you can reduce your expenses.  

Spending too much on groceries? Change what you eat. Beans, rice and eggs are versatile staples that just happen to be inexpensive without resorting to ramen for every meal.

Still paying for cable? It’s time to cut the cord.

Cutting back doesn’t mean cutting fun and entertainment entirely. If the change feels like it’s all sacrifice and no enjoyment, you’re not very likely to stick with it. Just look for small changes that can make a difference – like switching to an inexpensive streaming service (like Hulu for $7.99) instead of paying for cable, or reducing your cell phone data plan and using Wi-Fi more often.

Ask for help
If you’re in the hole, cutting back may not be enough to free up extra money to put towards reducing your debt. If that’s the case, ask for help where it’s available.

Every community has services to help people meet their basic needs and fight poverty, like: Project Now, Catholic Social Services, United Way and food stamp programs.

You should also ask for help from the people you make payments to – like requesting reduced rent, credit card payments, credit card interest, etc. Asking for help in this way is very hard for some people. If you think your landlord is just going to say no, what’s the point of asking, right? Wrong.

The worst thing that can happen is that they’ll say no. But, there’s a chance they’ll say yes. Say you call your landlord and credit card companies and request reduced payments for six months. They may not agree to that right away, but they could offer you reduced payments for three.

You didn’t get exactly what you wanted, but you got something and now you’re better off than you would have been had you not asked at all.

Start tackling your debt
There are two ways to tackle your debt: the debt avalanche method, and the debt snowball method.

The debt avalanche works like this: Make a list of all your debts in order of highest to lowest interest rate. Pay the just minimum payment on all your debts, but add the extra money you freed up to the account with the highest interest rate. When it’s paid off, add everything you were paying (plus the minimum payment) to the debt with the second highest interest and so on.

The debt snowball works in the opposite way: Instead of paying your debts off in order of the highest interest, you start with the lowest balance. Pay just the minimum payment on everything except the account with the lowest balance. Add any extra money only to that account. When it’s paid off, add everything you were paying (plus the minimum payment) to the account with the next lowest balance, and so on.

The debt avalanche might save you more money and help you pay off your debts faster than the debt snowball, but experts often recommend the debt snowball because of the psychological effect.

Paying off a loan or credit card feels good, and that good feeling helps you keep your motivation. By tackling small balances first, you give yourself that endorphin boost and free up extra money more often.

Getting out of debt when creating it has been a necessity is not an easy process. It takes some hard work and self reflection. And it might take more time than you want to think about.

The good news is that once you make a plan and set your debt repayment snowball in motion, it starts picking up speed pretty quickly.

Want to see how a debt snowball works to eliminate debt from high interest credit cards and payday loans in real life? Check out this example from IHMVCU Financial Advocate Jon Schrader.