Clever Strategies That Can Help You Conquer Debt

Get out from under that pile of debt with these quick tips

How to get out of debt handwritten on a blackboard.

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Are you trying to repay multiple debts? Maybe you have student loans, credit card debt, and a car loan. Maybe you owe money to a friend or family member. Maybe you have a personal loan from a bank.

Regardless of the type of debt you carry, you're probably trying to figure out how to handle your multiple debts.

You might be under the impression that the best way to repay your debt is by attacking the one with the highest interest rate first.

For example, let's say you have four debts:

  • Credit card, 10% interest rate, $24,000 balance
  • Student loan, 7% interest rate, $6,000 balance
  • Car loan, 3% interest rate, $12,000 balance
  • A loan from your mother, 0% interest rate, $10,000 balance

Looking at this list of debts, you might assume you should repay the 10% interest loan first. That makes the most financial sense, right?

Not necessarily.

There are actually three ways that you could approach your debt. None of them is "right" or "wrong"—you need to pick the one that works for you.

Three Approaches for Paying Off Debt

Approach #1: Pay your debts based on balance, from smallest to largest. In the example above, the student loan (with the smallest balance) gets paid-off first, which gives you the psychological thrill of victory, which keeps you motivated.

Approach #2: Pay your debts based on most-emotionally-irritating. In the example above, perhaps that money you borrowed from your mom makes you feel guilty and depressed. This might be the first you should repay, even though it's interest-free.

Approach #3: Pay your debts from the highest-interest to lowest-interest.

There's no "best" approach. Pick the one that works for you.

My only advice is that if you’ve already tried one of these tactics and you find that you’re not making much progress with the debt strategy that you have chosen, take a different one. 

One of my friends, for example, spent years trying to repay his debt based on interest rates and for several years didn’t make much progress on any of his debts. The minute that he shifted strategies and began prioritizing the debt with the smallest balance, his life changed. 

Every time he writes one of his debts off of his list, he felt a small thrill, a little psychological victory. This gave him the motivation to keep going. 

After spending years struggling and unable to repay all of his debt, he was able to become completely debt-free within one year, thanks entirely to shifting his strategy when it comes to which debt he’s prioritizing repaying first. 

But again, this approach worked for him. It may or may not work for you.

You need to take a look at your debts and decide which one is going to become your primary target. Make the minimum payments on all your debts, of course, and then throw every spare dime at that ONE debt target.

"I Don't Have Any Spare Dimes!"

Are you struggling to come up with enough money to pay more-than-the-minimum? These following tips might help.
First, take a hard look at your budget. Cut out the vast majority of your discretionary spending.

Cancel your cable, stop eating at restaurants, and downsize to a smaller home or apartment if you're a renter. If you're a homeowner or you can't easily move to a new home, take in a roommate or a housemate.

Wear thrift store clothes. Replace your car with an older used car—the type that a high school student might drive—and walk, ride your bicycle, and take public transportation whenever possible. 

Find some type of side hustle, such as earning money online during the evenings and weekends, and save every dime of this additional income after taxes. 

Then take all of this additional money that you're both earning and saving, and throw it at the one debt that you’ve targeted. You’ll start watching that balance decline and decline until eventually, it slices away entirely.

Still Can't Repay Your Debts?

If you've tried to repay your debts and you need help, here are three organizations with A+ ratings from the Better Business Bureau. Two of these three are charitable (not-for-profit) organizations.

InCharge is a 501(c) nonprofit organization and has an A+ Better Business Bureau rating. They can help you consolidate your credit bills into one monthly payment. They can help plan how to pay off your debt faster, lower your interest rates, stop collection calls, and build a realistic budget and financial plan. According to the InCharge website, “clients who complete the Debt Management Program pay off their debt in 3-5 years.” They provide free consultations, budget counseling, and financial education services.

Pioneer Credit Counseling is an A+ Better Business Bureau debt counseling company that is also a 501(c) non-profit organization. They specifically offer student loan debt counseling. They also happen to be a provider for the free mobile app called Trusted Helplines that offers financial support and advice for all of life’s financial difficulties.

ClearOne Advantage is another A+ Better Business Bureau company that is a good choice for debt consolidation. They do not charge any up-front fees, but you will have to pay once you’re out of debt and done with their program. Note that ClearOne Advantage is not a non-profit organization.