15 Ways to Fight Debt in 2015
Every Wednesday in January, I have decided to share a 15 of 15 list to help motivate anyone with their financial goals. I started with 15 ways to save and then shared 15 ways to invest and now I am sharing 15 ways to fight debt in 2015. With 60% of recent grads borrowing money to fund their education with an average student loan debt of $29,400, fighting debt is something many people are doing these days. Here are some of my tips:
1) Don’t Use More
I know this is overly simplistic, but the best way to fight debt is to not add onto the debt mountain. If you have student loan debt, it’s important for you to not add on credit card debt and if you have credit card debt, you should be wary of auto loans or personal loans.
Before you add more debt to your mountain, think about why you are taking it on and try to find other ways to avoid it. Think about each dollar of new debt as adding a mile to your debt repayment journey, you don’t want it to get any longer than it needs to be.
2) Customize Your Debt Plan
There are various schools of thought as to how you should repay your debt whether it’s the snowball method (paying off smaller debts first) or the interest repayment method where you pay higher interest debts first. Debt repayment is more emotional than anything else, so pick the plan that works best for you, as long as you are motivated by your plan, then you know you have the right one.
3) Use the Rewards System
In a debt repayment journey, you are bound to get debtors fatigue. If this happens to you, set a rewards system where you can “indulge” in something small based on various debt repayment hurdles. For example, if you pay down $1,000 in debt, you can indulge in a mani/pedi or something small you have stopped doing to focus on debt repayment.
4) Prepare Mentally
On Monday, I shared the song, No Easy Way Out, as a reminder that a debt repayment journey is typically long and difficult. It will not always be fun and you will need patience along the way. If you are mentally prepared for a cross country trip, versus a 5 mile trek, though, you will be better prepared for the duration.
5) Know What You Owe
This is another simplistic point; however, I can’t tell you how many people don’t know all of the debts that they have outstanding. There are websites like mint.com that help you aggregate all of your accounts to see them in one place or you can also check your credit report for everything.
6) Check Your Credit Reports
I think that you should check this at least quarterly for any changes. You want to make sure that the debts that you owe are the debts you have incurred. A big problem for many people are medical debts that they didn’t even know they incurred thanks to reporting issues between doctor’s offices and insurance companies. Monitoring your credit report will help you manage these potential problems. You can access a full free report every year at Annual Credit Report.com or you can check throughout the year on free sites like Credit Karma.
7) Use the Buddy System
I am a big fan of the buddy system for just about any financial goal. If you are in debt, I can guarantee you that you are not alone and chances are a number of your friends have debt as well. Create a competition between one or a few to see who can pay off the most debt in a month, quarter, or year and hold each other accountable along the way.
8) Track Your Expenses
Sometimes you’re not able to contribute as much to your debt repayment or you are susceptible to taking on more debt because you are not managing your expenses well. One of the greatest tools to help you manage your expenses is to track every single one. The process of tracking alone will make you more aware of your spending and help you spend less along the way.
9) Build a Healthy Emergency Fund
When you have a healthy emergency fund, you have the cushion to weather just about any financial crisis and this cushion prevents you from getting further into debt. I like to see clients save 6-8 months of monthly expenses in their emergency funds.
10) Cut the Waste
If you want to pay off more debt, start looking for ways to cut your wasteful spending. Last year I focused a lot of waste cutting in my house and with a few big changes ended up saving thousands of dollars. From my perspective, there is always room to cut waste, it just takes time, energy, creativity and some inconveniences.
11) Earn More Money
If you are tired of cutting and feel like you have nowhere else to save, then start making more money. Personal finance bloggers love to talk about side hustles and I have shared a podcast and blog posts on how you can earn more money. In fact, next week I will give you 15 ways to make more money in 2015 if you want to wait a week to get started.
12) Get Organized
The best way to keep up with your debt payments is to keep all of your debts organized. A good best practice is either a debt file which can be a paper one or an online one or a spreadsheet that lists each of your debts, who you owe them to, the interest rates and contacts for all of the lenders.
13) Think About Refinancing
I always advise clients to monitor the interest rates on their debts and think about possibly refinancing to save money over the period of the loan. This is not always an option for everyone and sometimes the refinancing process may cost you money; however, for a compelling enough rate reduction, it may be worth the effort over the long run.
14) Go on a Cash Diet
Credit cards make it very difficult to control your spending, and many of my clients get into trouble from too much mindless swiping. For my clients who struggle with the mindless swiping, I suggest a cash diet. It’s not only a great way to keep your spending under control, but it will also prevent you from adding more debt in 2015.
15) Start a Blog
I think one of the best ways to hold yourself accountable during a debt repayment journey is to start a blog. Some of my best blog friends are journaling their journey to debt freedom through their blogs. If you don’t want to start your own, then follow some of my friends like Melanie, Alicia, Laurie or LB.