11 Smart Ways to Help Get Out of Debt

The following is a guest post from Right Start LLC. I've written about these issues myself at length (including how to get out of debt and the two equations that lead to financial success), but I think it never hurts to review the basics.

Millions of Americans are currently facing a crisis with their credit card debt. The rise in unemployment and underemployment, the bursting of the housing bubble, the extraordinary tightening of lending standards and poor consumer spending habits have all contributed to this situation. Getting out of it can be extremely difficult, especially if the interest rates are high and minimum payments are all that can be made towards the debt. Repayment timeframes can literally extend to decades in many cases if the consumer continues to pay down the debt in this fashion, meaning that it can not only cover the remaining working lives of these borrowers but it may even continue into their retirements as well. In the event that you’ve found yourself in such a plight, here is a list of tips that I hope will help to save you some money, ease your financial burden and bring the light at the end of the tunnel (becoming totally debt-free) within sight.

1. Stop using your cards

This may go without saying, but I want to make sure that you don’t add to your present problem or undermine your future efforts to pay off your debt. Use only cash for your purchases and if you can’t afford it, then don’t buy it. You may not be able to do this completely at first without passing on some necessities, but try to reach the point where you’re living on cash as soon as you possibly can. Then take the cards out of your wallet and leave them at home in a safe place to use only for true emergencies.

2. Contact your creditors

Collect all your most recent account statements and organize their pertinent information on a separate page. Note the account number, balance, interest rate, minimum monthly payment and payment due date for each. Then call each creditor and tell them that you’ve been struggling to make the minimum monthly payments on your accounts, but that you are trying to do the right thing and pay off your debts. Ask them if they would consider reducing your interest rate so that you can pay them what you owe them. If they decline to help you, be polite and try asking them again periodically.

3. Pay off your highest-rate cards first

Pay as much as you can reasonably afford each month towards the card with the highest interest rate. This could change at times if you’re able to get your creditors to reduce their interest rate at a later time, so stay on top of any changes that may affect to whom you’ll be paying the most money. Make sure that you continue to make the minimum payment each month on all of the other accounts.

4. Analyze and reduce your expenses

Make a detailed list of all your monthly expenses and see where you might be able to reduce them. Then use the money you save to pay off your credit cards. Another good idea is to carry around a pocket-sized notebook for a month noting all your expenditures, no matter how small. You may be surprised at how much money you’re spending on items that aren’t essential. (Remember that any extra money you can come up with will pay down the principal balance of your highest-rate card.) Use the new information to revise your earlier list of monthly expenses, and once again see where you can free up some more money to pay down your cards.

5. Consider moving into a less expensive place

This may or may not make sense for you, but perhaps you’re living in a place that’s larger or more extravagant than you may actually need. This could save you considerable money over the long term. Don’t forget to consider the moving costs into the equation if you’re thinking seriously about this.

6. Consider renting out a room

Again I realize that this may only apply to some of you, but if it does it’s a great way to pay down your debt faster and save yourself some big money in finance charges over the long term. You may even already know someone who would be a good candidate. Consider this option carefully, as you don’t want to make a mistake that will end up costing you your tranquility at home.

7. Have your paycheck direct-deposited

Many employers offer this option to their employees, so check with them and see if you can do it. It’s much easier to keep from spending unnecessarily if the money never passes through your hands in the first place. There is some truth in the adage: “out of sight, out of mind”. Having direct-deposit can also save you the time and hassle of going to the bank to deposit your check, and it then makes a special trip necessary if you want to take some of your paycheck in cash. Don’t make it too easy for yourself to spend money.

8. Get a part-time job

Having another source of income can help speed up the repayment process too. When you consider that everything you take home can go directly towards the balance on your highest-rate card, it increases the value of the extra income you earn. Compare this scenario to the current one in which you’ll otherwise be paying additional finance charges from your present lower income amount. Over time this can make a big difference for you.

9. Find creative ways to make some money

Try selling some things you don’t really need on eBay, Craigslist or Amazon such as CDs, DVDs or other items that you may no longer be using. Garage sales are another great way to raise some cash and simplify your life at the same time. Remember that the proceeds can all be used to pay down your principal and reduces your finance charges on your debt.

10. Eat more home-made meals

This is a great way to save some extra money and get better control over what you put in your body at the same time. Eating meals out at restaurants can add up very quickly. When you do have to eat out, consider a place where you don’t have to tip, and just drink water instead of ordering a beverage all the time and padding your bill. Bring snacks with you to work instead of pumping money into a vending machine. Keep some snacks in the car to avoid having to stop at a convenience store if you get hungry.

11. Learn to become a smart shopper

There are many ways to cut down on your shopping bill, and I won’t try to cover them all here. But consider the fact that a good used CD or DVD will play the same as a new one, and that many people end up selling barely-used exercise equipment and recreational items at big discounts. Stock up when you see exceptional sales prices on good, nutritious foods that you enjoy from the supermarket. If you have more time than money, you should know that thrift stores can have new or almost-new items at ridiculously low prices that can substitute for something you would otherwise buy at the mall. You’ll be amazed at how much fun treasure-hunting can actually be, as you never know what may show up in these stores. I’ve seen everything from brand new furniture, high-line TVs and stereo equipment in perfect condition, and brand new designer shoes and clothing with the tags still attached, all selling for literally pennies on the dollar. Just remember that not all thrift stores are created equal, so don’t just try once and then decide that it’s a waste of time.

Comments

[Money Reasons]

I've been thinking about #6. Consider renting out a room for quite a while now. Not for me personally (I have 2 kids), but as a frugal maneuver!

People only see the negatives of such an idea, but there are positives too!

For instance, since you only live in a bedroom, you will be more apt to be active! After all, it's not much fun just being in a bedroom all the time!

Not only is this a healthier lifestyle, it means that you'll have more opportunities to make friends outside. Possible you'll be inclined to study harder if you are in college or perhaps you'll pick up an extra job, effectively increasing your income and decreasing your expenses at the same time!

[Doug L.]

I would really look into having a study abroad student stay over. Not only do you get some supplemental income, but it also provides your children with a wonderful opportunity to get to know someone from another country.

[Paul]

Using cash to buy everything is really a good idea. You are much more careful about your purchases when you think about your cash dwindling away (vs pulling out a card without little thought about the balance).

[PMT]

We rented a room in our house for a couple months (before kids) financially it worked out but otherwise it was kind of awkward. We're still friends, well casual acquaintances, with the person. This situation worked well because they needed a short term stay until they found their own place and they worked right next to my wife so we had good references but it's definitely not for everyone

[kt- lifedividend]

i have a small business loan and the only way to get out of that debt is to work very hard and break even. The good thing is that the person i borrowed it from had given me a flexible credit period so i dont have to hold up a bank or do something stupid in-order to pay the cash back. I am avoiding the bad debts obtained to get things that you just don't need like another pair of jeans and whatnot. These things will come later when the business stabilizes.

[My Personal Finance Journey]

Concerning #5 (moving to a less expensive place) - I am a big believer that this can have a huge effect on your finances. Since moving from the South to the Northeast (near Philadelphia), my monthly expenses have increased approximately 40%.

Concerning #9 (creative ways to make money) - I just learned that eBay has implemented a new fee structure for listing items. You can now list up to 100 items for free if the starting price is under $1. Pretty cool!

[Harrken]

#5 When I started working to get out of debt I sold my house and move into an apartment that cut almost $800 from my living expenses and utilities. I also moved about 10 miles closer to work which saves me about $120 in fuel cost.

#8 I worked several temporary programming jobs netting about $25,000. I worked from home and was able to expense my internet cost back to the company.

#9 I sold over 1000 books making me over $5000 to apply to debt. I held a garage sale netting about $850 and sold some other stuff netting about $1500, all of which got applied to my dent.

[MasterPo]

#8 has bigger issues to consider.

Depending on your income level (investment income as well as salary) the extra funds of a part time job may raise you into the next tax bracket effectively making it not worth your while to work!

And don't forget that lovely AMT!

[Felicia]

After keeping track of money spent eating out for one month then careful shopping and cooking at home we realized a significant savings.