Debt can be stressful, but having a clear picture of your finances and a plan for managing your debt can help you regain a sense of control. Getting out of debt doesn't happen overnight. It starts with understanding where you stand, deciding what you want to achieve and creating realistic steps to move forward.
Here are some practical ways to get started.
Understand your relationship with money
Your financial habits are influenced by your experiences, upbringing and beliefs about money. Think about what you learned about spending, saving and debt while growing up. Understanding these influences can help you recognize habits that may be affecting your financial decisions today. There's no need to judge yourself for past decisions. The goal is to understand where you are now so you can decide where you want to go next.
Know how much you owe
Before you can create a debt repayment plan, you need a clear picture of what you owe.
Make a list of each debt, including:
- Current balance
- Interest rate
- Minimum payment
- Payment due date
- Loan or credit term, if applicable
Include credit cards, lines of credit, personal loans, student loans, vehicle loans and other outstanding balances. Once everything is in one place, you can start prioritizing your repayment strategy.
Create a realistic budget
A budget can help you understand how much money is coming in, where it's going and how much you can reasonably put toward your debt. Start by tracking your income and expenses. Look for opportunities to reduce spending, but don't create a plan so restrictive that you can't maintain it.
Your budget should account for:
- Housing
- Utilities
- Food
- Transportation
- Insurance
- Debt payments
- Savings
- Personal and discretionary spending
For help creating a budget, see YNCU's How to build a better budget guide.
Choose a debt repayment strategy
Once you know what you owe and what you can afford to pay, choose a repayment approach.
Pay the highest-interest debt first
With the debt avalanche approach, you continue making the required payments on all your debts while putting any additional money toward the debt with the highest interest rate. Once that debt is paid off, you move on to the next highest-interest debt. This approach can reduce the amount of interest you pay over time.
Pay the smallest balance first
With the debt snowball approach, you focus additional payments on your smallest balance while continuing to make the required payments on your other debts. Once the smallest balance is paid off, you move to the next smallest. This approach can provide a sense of progress and motivation as you eliminate individual debts. Neither approach is automatically right for everyone. The best strategy is one you can realistically maintain.
Set specific financial goals
Debt repayment can feel overwhelming when the finish line seems far away.
Break your larger goal into smaller milestones.
For example:
- Pay off one credit card
- Reduce your total debt by a specific amount
- Make an extra payment each month
- Build a small emergency fund
- Stop adding new balances to your credit cards
Make your goals specific and measurable so you can see your progress.
Build an emergency fund
It can be difficult to pay down debt if every unexpected expense sends you back to your credit card. Even a small emergency fund can provide a financial cushion for unexpected expenses. Once your highest-priority debt is under control, you can gradually work toward building a larger emergency fund based on your circumstances.
Be intentional with your spending
Pay attention to where your money is going and how your spending decisions affect your goals. This doesn't mean eliminating everything you enjoy.
Instead, ask yourself:
Does this expense support the priorities I've set for myself?
You may find that some expenses are worth keeping while others can be reduced or eliminated. The important thing is to make those decisions deliberately rather than letting your spending happen automatically.
Get help when you need it
You don't have to figure everything out on your own. If you're struggling with debt, a financial professional can help you understand your options and develop a plan based on your circumstances. Depending on your situation, that could include reviewing your budget, discussing repayment strategies or exploring whether consolidating certain debts makes sense. Getting help early can make it easier to understand your options before financial stress becomes overwhelming.
Take the next step
Getting out of debt takes time, but every payment and every informed financial decision can move you closer to your goal. Start by understanding what you owe, create a realistic budget, choose a repayment strategy and review your progress regularly. Financial empowerment isn't about being perfect with money. It's about understanding your options and having a plan for the future.
This article is for general educational purposes only and does not constitute financial, investment, tax or other professional advice. Debt repayment strategies should be evaluated based on your individual financial circumstances.
