September 27, 2022

Dig Your Way Out of Debt in 8 Steps

If you are reading this article, you probably have too much debt. And if you’re in a financial hole due to debt, the only real solution is to change your debt habits and start digging your way out, one step at a time.

Here are 8 ways to unburden yourself from the weight of your debt:

  1. Total up all of your bills and all of your income sources to find out what’s left every month. If it’s less than nothing, take drastic steps to downsize your lifestyle.
  2. Use every free dollar to start paying off your debts starting with the highest-interest obligations.
  3. Check your credit rating from all three credit unions and handle the dings first.
  4. Consolidate debt if possible. Use a low-interest home equity line of credit if you can.
  5. Double up on monthly high-interest payments whenever possible.
  6. Review every day-to-day expenditures to find ways to cut back.
  7. Get advice from a credit counselor (but avoid the ones who charge fat fees).
  8. Consider renegotiating your agreement with one or two lenders to ease the pressure.

Experts recommend paying down your credit cards with the highest interest rates first.

There are student loan forgiveness programs and income-based repayment programs for those struggling to pay their college loans.

Being in debt can impact your mental and physical health over time.

Why Digging Out is Worth It

Being deep in debt can be stressful to your health. The worry over how to pay the bills and the struggle to save for the future impacts over 50% of the population. And stress over finances can make it more difficult to save, budget, or even write a shopping list to help keep you on track at the store.

Digging yourself out of debt can boost your mental and physical health. Having more income freed up from debt may mean greater financial confidence, morale, and better opportunities to save for the future.

Financial experts often recommend two ways to tackle debt. The “avalanche” method and the “snowball” method. Both plans may help you focus your approach to paying down debt. An avalanche approach means you pay off your loans or credit cards with the highest interest rates first. You throw as much money as you can at them, and pay only the minimum on all your other loans. The snowball approach has you tackle the lowest amount of debt first, pay it off, and then tackle the next loan.

Digging Out of Debt FAQs

How Can You Dig Yourself Out of Debt and Save at the Same Time?

Yes. You can dig yourself out of debt and save at the same time, but it takes planning. First, tackle the high-interest debt, and always pay the minimum balance on your credit cards and loans. Plan to save a small percentage of your paycheck for your nest egg, as you pay down your loans. Even a small amount in a savings or money market account will add up over time.

Another way to dig out of student debt (or any kind of debt) is to consider finding a job with a higher salary and allocate more money to paying down your loans.

How Can You Dig Yourself Out of Real Estate Debt?

If your mortgage debt is too high, there are a few steps you can take to help lower it. First, if your credit score is high enough, ask your mortgage lender about refinancing your mortgage for a lower percentage rate. By doing so, you might be able to lower your payments. Another way to dig out of your mortgage debt is to make extra payments towards the principal on your mortgage loan. By doing so, you will lower the overall mortgage.

If you can’t actually pay your mortgage, call your mortgage lender immediately. Ask about working out a payment plan or ask for a loan modification. You could consider selling your home if market conditions are strong and settling your debts. Of course, you need to make plans for new housing if you go this route.

How Can You Dig Yourself Out of Student Debt?

There are several strategies for getting out of student loan debt. If you have multiple student loans, consider refinancing your loans into one payment with a lower interest rate. Investigate loan forgiveness programs, usually only offered on federal student loans or an income-based repayment program.8

If your student loans are privately held, reach out to your lenders to see if you can work out a payment plan with a lower amount of money, at least temporarily.

The Key Point:

If you can’t dig yourself out, you may have to declare bankruptcy, which can ruin your credit rating and make you ineligible for loans or credit for years. In addition, student loans may not go away even if you declare bankruptcy.

For some, getting buried in debt and having to dig their way out is enough to turn them off, piling up more debt in the future. In the end, debt can wreak havoc not only on your finances but also on your mental and physical health. Digging out of debt, putting money aside for retirement and personal savings, and making sure not to go back into debt, are all ways to build a secure financial future for yourself and your loved ones.

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