by Lyle Daly | Oct. 29, 2019
The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
Anyone who has had trouble with debt understands how hard it can make your life. It practically carves out its own space in your head -- and getting a moment's peace is a Herculean task. You're constantly thinking about how much you owe and questioning how you'll pay it off.
If that's something you deal with, you're not alone. In our research on the psychological cost of debt, we found that 28% of people in debt think about it at least once per day and another 20% think about it almost every day.
Even though plenty of people obsess over their debt, that's no way to live. But, to stop this habit, you first need to understand exactly what's causing it.
When consumers think about their debt on a daily or weekly basis, it's usually because they feel like that debt has gotten out of their control. This often happens with high-interest credit card debt, as balances seem to just keep growing. Another example is when you have so much debt that you can barely pay your bills every month or need to dip into your savings to stay afloat.
You end up unsure how long it'll take to become debt-free or if that's even a possibility. At that point, anxiety about your financial situation can find ways to creep into your mind every day.
Can you afford to take a day off if you're sick? What will you do if your car breaks down? The only way to solve this is to make a plan for getting debt-free.
You ultimately need one thing to eradicate your worries about debt: a payment plan you can afford with a timeline to pay off everything you owe. Once you figure this out, you won't have any more uncertainty about your financial situation.
That's easier said than done, but here's how you can make it happen:
For each debt, include
To get your disposable income, start with your monthly take-home pay (your income after taxes, retirement plan contributions, and any other automatic deductions from your paycheck).
From that take-home pay, subtract the minimum monthly payment amounts for all your debts and essential living expenses.
What's left over is your disposable income, and this is what you'll use to pay down debt.
If you don't have much or any disposable income, first make sure that you've eliminated all your nonessential expenses. This is the time to buckle down and cut everything that you don't need. If you're still in the negative, I've listed a few ways you could reduce your monthly debt payments in the section below.
You'll use your disposable income to pay extra towards your debt, but you'll need to know which debts to pay off first. I recommend the avalanche method, in which you pay debts with the highest interest rates first. That saves you the most money.
Be careful if you have any debts on introductory offers. For example, if one of your debts is a 0% deferred interest offer, the creditor can charge you interest going back to the date of the purchase if you don't pay it off by the end of the introductory period. In that case, you'd want to prioritize that debt even though it has 0% interest at the moment.
There are a couple options to cut your monthly payments, your interest rates, or both.
The most popular is debt consolidation, which you can do with a personal loan or a balance transfer credit card that has a 0% intro APR. You'll likely need a good credit score for either option. If you qualify, debt consolidation can get you a better interest rate and potentially a cheaper monthly payment. An additional benefit of debt consolidation with a personal loan is that it gives you a fixed timeline to pay off your debt.
You can also try negotiating with your creditors. If you contact them to explain that you can't make your payments, they may be willing to reduce either your monthly payment or your interest rate. It's often better for them to have you continue your payments, because if they sell your debt to a collection agency, they'll only get pennies on the dollar for it.
It doesn't get much worse than thinking about your debt every day or even multiple times per day. No one's debt situation is hopeless, though, and if you put together a realistic plan to pay everything off, it will do wonders for relieving your stress.
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. The Ascent's picks of the best online savings accounts can earn you more than 12x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on The Ascent's shortlist of the best savings accounts for 2021.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2021 The Ascent. All rights reserved.