5 Ways to Dig Out of Debt

Have you racked up more credit card debt than usual because of the COVID-19 pandemic? Or, maybe you’ve carried a substantial amount of debt for years and want to ditch that burden once and for all.

Either way, it may be possible to knock that pesky debt out faster than you think.

Click here to sign up for our free financial education email course.

1. Create a budget

If you’re serious about paying off debt, the first thing you need to do is create a budget so you know where your money is going. Once you have an idea of how your income stacks up to your expenses, you can prioritize which debts you plan to pay off first. Then allocate monthly payment amounts for each debt.

To make budgeting easier, try a budgeting app such as Mint, which you can link to bank accounts, bills, and debit and credit card spending. The free version of the Mint app even updates and categorizes the information, including how much you owe on credit cards and loans.

Find out: 5 Fun Apps to Help Build Emergency Savings

2. Build emergency savings

It may seem nearly impossible to set aside at least some money for emergency savings when you can barely afford the credit card bills or other debt payments you have now. However, try to scrounge enough to have at least $1,000 in emergency savings while you pay off debt. That way, you may not have to put unexpected expenses such as car repairs or small medical bills on a credit card, adding to the debt you already have.

Tip for building emergency savings fast: Sell items online that you don’t use or need, like that exercise bike in the basement, extra television, home office, sofa, or other furniture.

Find out: 6 Lessons COVID-19 Teaches Us About the Value of Emergency Savings

3. Seek credit counseling

Meeting with a credit counselor at a nonprofit credit counseling agency can help you figure out a budget, pay off creditors faster and learn how to manage your finances better so you don’t get into debt trouble again. Nonprofit credit counselors are usually free or charge a nominal fee.

Find out: 5 Ways Credit Counseling Can Help You Pay Off Debt

4. Look into debt settlement

If you owe so much debt that you feel like it could take a decade or two to dig out, debt settlement may be an option. With debt settlement, you hire a debt settlement company to negotiate your debts to a reduced amount, so you only pay back a portion of the balance owed.

Generally, a debt settlement company asks you to make regular payments to a trust account it sets up for you. The company then holds the money in escrow until you’ve deposited enough to start making negotiation offers. Debt settlement companies charge fees, and the industry has its share of companies using deceptive business practices, so make sure the debt settlement company is reputable before signing up for a debt settlement program.

Find out: 7 Debt Settlement Myths Debunked

5. Take a second job

Nobody wants to clock out from one job and head to another, but a second income could be just what you need to get out of debt faster. What if you allocated the entire amount of every paycheck from a part-time job towards your debt? You may be able to knock out your smallest credit card debt or past-due medical bill in just a month or two and move on to the next.

To pay off debt faster, start delivering pizzas, dog walking, or earning more each month with a part-time job. Remind yourself the situation is temporary and commit to working part-time for at least a few months.

You’ll be amazed at how quickly you can adjust to the additional work hours. And earning an extra few hundred dollars (or more) each month that goes directly to paying off debt can help you pay it off sooner than you think.