Published in: Credit Cards | Dec. 16, 2019
4 Ways to Get Out of Debt in 2020
By: Maurie Backman
Shed your debt for good with these key tips.
Being in debt is no fun. Not only can those monthly payments be a strain on your limited financial resources, but the mental impact of debt can also, in some cases, be just as troublesome. If you're saddled with debt at present, it's time to bust out of that cycle. Here's how to do just that in the course of 2020.
1. Follow a budget
Having a budget will make it easier for you to track your spending, keep your spending in check, and spend less. The result? More free cash month after month -- money that can be used to pay down your debt so that it slowly but surely disappears.
Creating a budget may seem like a daunting prospect if you've never done so before, but actually, it's quite simple. Review your bank and credit card statements from the past year to see what your various bills entail (including those that may not recur monthly). When you have an accurate sense of what you typically spend, open a spreadsheet, list your expense categories, dump those numbers in there, and compare your total spending to your earnings.
If you're not pleased with the difference -- meaning there's not much room left over for savings or you find you spend more than you earn -- you can then go back through your expense categories and identify those that'll be easiest to cut back on to free up more cash.
2. Cut back on one big expense
If you're dealing with, say, a $1,500 credit card balance, you might be able to get rid of it by making a bunch of small changes throughout the year. By the time 2020 closes out, those small savings add up. But if you're sitting on a much larger debt pile -- say, $10,000 -- buying fewer lattes and canceling some subscription boxes isn't going to cut it.
If you're in the latter situation, you'll need to think bigger, and that means reducing one major expense in your budget. That expense could be housing (downsizing your living space could cut your rent in half), or it could be the car you enjoy having but technically don't need. The key, however, is to free up a more substantial chunk of cash month after month to make that debt disappear.
3. Get a second job
It could be the case that you're already living a fairly modest lifestyle, and therefore don't have many expenses you can reasonably cut back on. If that's the case, but you're serious about knocking out your debt, get a second job on top of your main one. Ideally, that means finding a gig you'll enjoy doing. If you like animals, sign up to walk dogs or pet-sit on weekends. If you enjoy crafting, start a business selling your handmade goods online or at local fairs. And if you're great with kids, try tutoring or babysitting -- you're never too old for it.
4. Lower the cost of your debt
Shaking your debt will be easier if it doesn't cost you as much. And the best way to make that happen is to lower the interest rate on the amount you owe.
You have a few choices in this regard. First, you can reach out to your lender and ask for a lower interest rate on your outstanding balance. That may be your credit card company, or, if you're dealing with student loans, your loan servicer. If you've been timely with your payments thus far, your lender might agree.
If you're dealing with credit card debt, another option is to do a balance transfer where you move your existing debts onto a new credit card with a lower interest rate. You may even qualify to pay 0% interest for a limited period of time as soon as that transfer is complete.
If you're dealing with another type of loan (like a personal loan or student loan), you can look at refinancing it. Doing so means swapping an existing loan for a new one, and if the interest rate on that new loan is much lower than the rate you've been grappling with, it'll make that debt easier to eliminate.
If you're tired of being in debt, make 2020 the year you kick it for good. It'll require some effort on your part, but you'll be thankful once the burden of monthly debt payments is a thing of the past.
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