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6 Best Ways to Get Out of Debt and Achieve Financial Freedom

There’s no doubt about it—debt is limiting. Good or bad, too much debt affects your financial health in more ways than one. It’s not only a stressful place to be, but it can also limit your ability to pay your day to day expenses, plus secure a mortgage for a home or even a loan for a car.

But here’s the crazy thing: The average American lives with an astounding amount of debt. According to a recent study, the average person in the United States has approximately $90,460 in debt. This includes all types of consumer debt, from credit cards and personal loans to mortgages and student debt.

And it’s a number that continues to rise with each passing year. According to another recent study, total debt has increased more than 6 percent over the past 12 months. What’s more, the cost of living is increasing faster than household income, putting the average consumer in a very precarious—and, frankly, dangerous—financial situation.

More than a third of Americans (35 percent) say they feel the sting of their worsening financial situation. So what can you do if you find yourself in this camp?

First and foremost, don’t let yourself be paralyzed by fear. Remaining complacent and inactive is the worst thing you can do. Even baby steps in the right direction are better than no steps.

Here’s where to start:

1. Create a better budget

One of the most important things you can do is inform yourself about your finances. Compare your income against your expenses. Does what you bring in cover what you have to pay out? If not, look for ways to trim the fat. Cut out unnecessary expenses, and then reevaluate. The goal is to have a surplus of funds you can use to pay down debts and, ultimately, save for future needs.

If you’re having trouble sifting through all the noise, enlist the help of a professional. Or, try The Money Date Box, which can help you make sense of your finances without spending a hefty fee on outside counsel.

2. Pay more than your monthly minimum

One of the most dangerous things about debt is the snowball effect. The more debt you have, the more it grows over time, thanks to things like interest rates. At minimum, always aim to pay the minimum for each debt, if you’re able. Though this won’t help you avoid interest, it will help you avoid additional penalties, like late fees, plus preserve your all-important credit score. But if you can, consider paying as much as your budget allows. Though it may prevent you from saving much in the short-term, you’ll be in a better financial spot in the long-run—often a savvy move that’s worth the immediate cost. And consider this when paying off debt: Though it may feel good to pay down smaller debts first, it’s the larger debts with the highest rates that are hurting your financial health the most, so it’s typically preferable to pay those down first.

3. Set up an emergency fund

Do you have three to six months of liquid cash to carry you through job loss or any other unexpected expenses? If not, take a hard look at your budget, since these kinds of unexpected events can cause debt to snowball even more. Are there areas you can button up in order to put more towards your emergency fund? Even a starter fund with a few hundred dollars in it is better than nothing. Once you have one established, evaluate your budget to see what you can realistically add each month. Then, consider setting up an automatic withdrawal from your checking account to the emergency fund account, so you don’t even have to think about it.

4. Retire your credit cards

If you have a tendency to swipe, despite rising debt, it’s time to think about retiring your credit cards. Of course, you don’t want to default on any necessary payments, so go ahead and pay those off if you need to, but resist the urge to whip out your credit card every time you head to the store—especially for unnecessary items. Since a credit card is a more abstract form of payment, you’re more likely to overspend blindly, only to realize later just how much you actually spent. Leave your credit cards at home and, instead, keep a finite amount of cash on hand for daily or weekly spending. This way, you’ll be able to watch as it fades. Try to stick to the mindset that once that money is gone, it’s gone.

5. Negotiate with creditors

You know what they say: It never hurts to ask. And while things like interest rates feel very fixed, there can be some wiggle room—particularly if your credit history is favorable. If you’ve been making on-time payments, but you’re struggling, call to see if you can negotiate a lower interest rate or monthly minimum. And if, for some reason, you can’t make a minimum payment, give your lender a call. They may be able to extend the deadline or waive the late fee as a one-time courtesy.

6. Spend smarter

Look over your credit card bill, and cut out anything unnecessary like a subscription you rarely use. You can even downgrade subscriptions to save a few dollars here and there, without making huge sacrifices to your lifestyle. You can also adjust your spending style to be a bit more savvy. Are there cash back and coupon services you can take advantage of? Or maybe you can sell some of your unused belongings in an effort to pay down some of your larger debts? There are always small, but extremely clever strategies you can employ to save money and get out of debt, even when you’re on a very tight budget.

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