Taming Your Debt: Aggressive Repayment Strategies
Why is it so easy to get into debt and so hard to get out? I think the answer lies somewhere in the machinery of our consumer culture. We’re constantly encouraged to buy things whether we can afford them or not. There are creditors lining up to finance whatever they’ve convinced us that we not only need, but rightfully deserve. And what happens when we find ourselves on that predictable but precarious ledge — teetering on the edge of financial ruin? There are more products and services to buy that can help us solve our financial problems. And (surprise!) not only do we need these essential tools, we deserve them!
If you see the sick cycle here, you’re not alone. More and more folks are waking up and realizing that taming debt just takes a bit of planning, some conscious choices, and some very hard work. Let’s explore a few strategies to tackle your debt and empower your financial future. (See also: How to Start Fighting Debt — Today)
Face How Much You Owe
The first step to any successful debt repayment plan is to get an accurate idea of exactly what you’re up against. Avoidance is not your friend; organize your statements, make calls, and determine exactly how much you owe to each creditor. It’ll inform the rest of your strategy and help prepare you for the next essential steps.
I was tempted to make this the first step, but people tend to be much more motivated to adopt a cash-only life when they see how much they owe. Consciously choosing to spurn all but the most essential (read: life-and-death) debt is a vital piece of the puzzle. Put your credit cards on ice and resolve to pay with cash only. Consider rudimentary cash management systems like envelope budgeting to keep your spending in-check. Withdraw all the cash you'll need at the beginning of the month and divide it between envelopes that are labeled by expense. Force yourself to spend only within the parameters of each envelope's available cash. Nothing saps motivation like hammering down one debt while another one pops up somewhere else.
Chart It Out
Equipped with your figures, create a spreadsheet of what you owe. This doesn’t have to be fancy. Whether you use a computer and budgeting software or poster-board and a Sharpie, just take the information out of the abstract and make it visual. Keep your chart prominent and easily accessible to encourage updates maintain laser-like focus. Use it to track progress, make notes, document your successes, and motivate yourself along the way.
Once you know how much you owe and can see the challenge ahead, it’s time to start communicating (if you haven’t already done so). Start a discourse between yourself and your creditors. Explain your situation — share the circumstances that helped create this debt and stress your motivation to pay. Ask if there’s any opportunity to lower your interest rates, have penalties waived, or set up a payment plan that will prevent interest from accumulating. Create a list of important customer service numbers to keep the communication channels open during the entire repayment process. This active communication does two things. First, it demystifies the debt and tames it in your mind. Second, it establishes a history of communication and positive interactions that often allow creditors be more flexible with terms.
Attach a Source of Income for Each Debt or Debt Category
Depending on your employment situation and time obligations, consider servicing each debt or debt category through a part-time job. For example, could you work in a coffee shop on weekends and direct everything you make to your car loan? What about tutoring students during the evenings and splitting the income between all your credit card debts? Though it may sound extreme, if your financial resources are already stretched paper-thin, this tactic creates a brand-new money stream that’s earmarked solely for debt repayment. It’s a powerful tool that can often tame debt faster than budgeting and re-budgeting a single source of income.
Pay Off the Small Debts First...and Fast
I know it goes against most number-crunching advice, but I’m still a fan of paying off the smallest debts first. Of course, every situation is unique and there may be extenuating circumstances that make this approach impossible. But if there are no immediate financial disasters looming, (i.e., foreclosure/eviction, repossession, wage garnishments, etc), consider making the smaller debts top priority and taking care of them quickly. This approach gives you a bit of breathing room to focus on the "big kahuna" debts, creates some positive reinforcement, and gives you that most essential tool of all — the encouragement to do it again.
More than likely, when that last payment is made you’ll experience some sort of natural exhilaration. You’ll look at that scrawled chart and all your notes and inadvertently find your motivation for the very last step, the one that goes almost without saying — stay debt-free.
Do you have a debt-defeating story? What methods did you use to tame your debt and start fresh?