How to Get Out of Debt in 2020
For many, paying off debt can feel like an insurmountable task.
The most common types of debt for Americans include mortgage debt, student loans, auto loans and credit-card balances. Debt can dent one’s ability to save for retirement, may hamper homeownership and impede overall future financial security.
While some may be tempted to ignore debt for now, it isn’t recommended.
“The longer you procrastinate making a plan to get debt-free and just make the minimum payments, especially on high-interest rate debt, the more brutal the build up,” says Erin Lowry, author of “Broke Millennial.”
Instead, taking the time to devise a strategic course of action can help those with debt feel in control of their financial lives—even if becoming debt-free is years away.
Below, three personal-finance authors sketch out a game plan to help those hoping to make a fresh start on their debt repayment.
To help eliminate her husband’s roughly $50,000 in student loans, Ms. Lowry created a spreadsheet after the couple got engaged in 2017. In the document, Ms. Lowry and her husband wrote down each of the lenders’ names, the interest rates, principal balances and minimum monthly payments.
Doing so helped the couple see their total obligations clearly and gave them a greater sense of control over their debt. It also enabled them to develop a plan for how they would combine their money after marriage in August 2018.
From there, they decided to “avalanche” their debt: They made minimum payments then paid down debt from the highest interest rates to the lowest, regardless of each loan’s balance.
The approach worked well. The couple anticipated to be student-debt-free by February 2020, and hit their goal this December.
“We attacked it as a team,” said Ms. Lowry.
Commit and take action
Jill Schlesinger, author of “The Dumb Things Smart People Do With Their Money” and on-air business news analyst for CBS, said people too often take a defeatist attitude when it comes to their debt. They berate themselves for racking up the debt and are convinced they will never be free of it.
Change your perspective, she recommends.
“You have to have a conversation with yourself that you’re going to do this,” Ms. Schlesinger said.
Ms. Schlesinger said start by taking small steps. For outstanding debt, establish automatic payments, even for a small amount, so you can avoid or minimize penalties and fees. Whatever the outstanding debt, try paying an additional amount, even just $10, to chip away at it.
If it is medical debt, you could try to negotiate with the medical provider to work out a payment plan.
People often get shellshocked when they find out about medical bills, said Stacey Tisdale, president of Mind Money Media Inc. and author of “The True Cost of Happiness: The Real Story Behind Managing Your Money.” It is important to take a deep breath and remember that unlike much of your other types of debt, there is usually no interest charged on medical debt. Medical organizations will likely want to negotiate because if patients don’t pay, they typically sell the debt to collectors who may buy it for pennies on the dollar.
“Make a phone call as they will most likely work with you,” Ms. Tisdale said.
Set goals and reminders
If you connect why you want to pay off your debt to your overall financial plan you will have a better chance of success, said Ms. Tisdale.
Just aiming to pay off your credit-card debt by this time next year because it seems like the right thing to do may not motivate you to actually do so, especially if you have to make sacrifices to make it happen, she said.
But if you set specific, measurable, attainable goals with a deadline that connects to your overall financial plan you will be more motivated, she said.
Ms. Tisdale also likes to keep reminders of her goals handy. For example, many years ago when she wanted to save money for a trip to Paris, she put a picture of the Eiffel Tower in her wallet with her credit cards. This small step gave her pause and reminded her of her goal every time she considered charging something.
Also, set realistic expectations and cut yourself some slack, CBS’s Ms. Schlesinger said. You probably didn’t create the debt overnight so don’t expect to eradicate it all at once either.
For more smart financial news and advice, head over to MarketWatch.
Article by Veronica Dagher on realtor.com