According to reports from the second quarter of 2022, the total of all household debt in the United States is a whopping $16.15 trillion. Mortgages make up the bulk of that debt, with student loan, auto loan and credit card debt trailing behind.
On average, adults in the United States carry debt loads ranging between $20,800 and $146,200. If you're in debt and looking for a way to pay it off, making a plan is a critical step. Find out more about how to get out of debt below.
Before you can get out of debt, you need to know how much debt you actually have. You should also know who you owe and what the terms are, as this can help you prioritize debt payments to pay them off faster.
Start by collecting all your debt paperwork in one place and creating a master list of everything you owe. You can do this in a spreadsheet or with a pen and paper. Information to gather includes:
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Using the information you gathered in the above step, create a monthly budget. Make sure you cover all your bills and minimum debt payments. When possible, include an amount that can go toward building your savings. Allocate funds for essentials, such as groceries and gas.
Once you cover all the needs for the month, figure out how much money you have left. How much of that can you put toward extra debt payments so you can start getting ahead on debt?
If you see that you have any debts in collections when you pull your credit reports, make sure you have a plan for taking care of them. Collection accounts have a serious negative impact on your credit score. Creditors may also sue you and try to collect on these accounts via wage garnishments or bank levies if you don't take action to manage collections. That can throw a huge wrench into your plan for getting out of debt.
Tip: If you don’t enjoy manual calculations, check out Tally. You can use Tally to total up your expenses, pay down credit card bills, and generally figure out where you stand.
There are two main approaches to paying off debt as quickly as possible: the snowball method and the avalanche method.
The snowball method involves paying off accounts with the lowest balances first. You take any extra money you have—even if it's just $50—and add it to your regular minimum monthly payment on that small balance. When that balance is paid off, you take the extra $50 plus the minimum payment and add it to the next biggest balance. You keep doing this as you work your way up to larger balances, paying your debt off faster and faster.
With the avalanche method, you tackle accounts according to interest rates. You start by paying off accounts with the highest interest rates first. The thought behind this method is that you save money in the long run by tackling high-interest debt first.
Interest refers to how much your debt costs. If you have a lower interest rate, your debt costs less and you can pay it off faster. Here are some ways you can try to reduce interest rates on your debts:
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Only paying the minimum on high-interest debt, such as credit card debt, doesn't get you out of debt fast. It can take years—dozens of them—to pay off credit card balances if you're only making minimum payments.
Instead, put more than the minimum on your debt whenever possible. You may also want to put any additional funds you receive—such as a tax refund—on your debt to help with this process.
Creating a budget, managing your money wisely, and making extra payments toward your debt all help you get out of debt. Here are some other ways you can deal with debt:
Paying off debt doesn't have to be impossible, but it can be challenging. For many people, it requires altering years' worth of financial habits. If you're not already in debt, it may be easier to stay out of it. Create a budget and stick to it, spend wisely and avoid using credit cards for things you don't need or can't afford to buy with cash.