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Paying off debt is hard, but it is possible. Whether you’ve made money mistakes in the past or find yourself getting deeper into debt, there’s a way out.

That’s good news, because carrying debt is like carrying around a weight. And the questions only make it feel heavier:

• Should you save more money or pay off debt?
• Is your credit score impacted if you don’t make minimum payments?
• When debt feels like it’s pressing down, how do you begin to get out?

Every situation is different, and it takes time and dedication to pay down debt. But there is hope — a tried-and-true recipe for tackling debt that has helped thousands of people.

Launch your own debt-free success story with Numerica’s workbook!

Paying off debt

Here are 5 steps for achieving freedom from debt:

1. Start with your why
2. Use a budget
3. Stop adding new debt
4. Roll a debt snowball
5. Celebrate every win

Start with your why

There is a heaviness to debt that weighs down the present while casting a shadow on future dreams. You can try to ignore it, but it’s best to face it head on and be honest about the cost — not just in interest payments, but in life.

Find your why, and make the decision to turn your finances around. Whatever your reasons — health, relationships, or retiring early — write down why you are ready to get serious about tackling debt. This is your north star.

What sacrifices do I need to make to get out of debt?

Once you have your why, it will be time to make some sacrifices. For some, that might mean a “beans and rice”-style food routine for a season. For others, it might look like canceling subscriptions or nail appointments, eating out less, or selling things around the house.

With your why in mind, the sacrifices have a greater purpose. And they’re worth it. 

Sacrifice isn’t a popular word in our have-it-all culture, and part of why it gets a bad rap is FOMO — that fear of missing out.

Sometimes, it helps to turn FOMO on its head: What will you miss out on if you don’t make this sacrifice?

• Don’t miss out on better relationships. Financial problems strain relationships. When stress from debt is gone, your most important relationships improve.
• Don’t miss out on better physical health. There’s a correlation between financial health and physical well-being. Stress about money can affect you physically and mentally for years.

Use a budget to get out debt

When you’re living paycheck to paycheck, it can be hard to feel hopeful about your situation. After all, other people seem to be living the good life.

Not so fast. For every 10 households in your neighborhood, 8 of them are living paycheck to paycheck, according to a 2017 study by CareerBuilder. (You know the Joneses you are always trying to keep up with? They are probably one of them.)

It’s nearly impossible to pay off debt without a budget. Part of creating a budget is tracking your spending. This helps you get an idea of where your money goes each month. You can determine how much you have available to put toward reducing your debt.

Find out how much you usually spend on things like coffee or a gym membership. Can you reallocate that money toward paying off your debt? A budget is a blueprint to help you do this.

A budget also lists your monthly debts. Listing out your debts will give you a better idea of where your money is going.

Perhaps the trickiest part about a budget is actually using it. Your budget is a living, breathing, real-time money tracker that should be consulted and updated regularly.

Stop adding new debt

Henry Wheeler Shaw said, “Debt is like any other trap — easy enough to get into, but hard enough to get out of.”

One of the main traps is that debt has a way of multiplying. Don’t rely on credit cards or loans to make ends meet — that adds more debt. Compare your budget to your spending. Are there changes you can make rather than using credit?

Leave your credit cards at home to reduce temptation. Make purchases with cash or a debit card. Pay your recurring bills with your financial institution’s bill pay service.

The bottom line is to only spend the money you have. You can’t pay off debt if you are still accruing new debt.

Roll a debt snowball

Have you ever had debt grow like a snowball rolling downhill? The good news is getting out of debt can work much the same way.

Start by organizing your debt from smallest to largest. List everything — from credit cards to mortgages. Next, scour your budget for those savings you identified earlier. Consider a side hustle or yard sale to help jumpstart the process. Now that you’ve identified a pool of money for your initial snowball, you’re ready to start.

What debt should be paid off first?

Apply every dollar you can spare to your smallest debt balance while making minimum payments on everything else. Do this each month until your smallest debt is paid off, then roll that into the next-smallest debt.

Another effective option is to focus first on the debt with the highest interest rate. The important thing is to commit to a strategy that makes the most sense for your situation.  

Should I consolidate my debt?

Consolidating debt shouldn’t be your top option. First, change your spending habits and make adjustments to your lifestyle. When you consolidate, it can be tempting to rack up new debt, turning this option into more of a Band-Aid than a cure.

Tips to help the snowball grow

Make the magic happen by applying any extra money like bonuses, pay increases, or sales of a big item to your debt snowball. Every extra dollar helps your snowball move faster to get you out of debt.

Celebrate every win

While the ultimate goal is being debt free, each step along the way is worthy of celebration. After all, every month you pay down debt instead of adding to it you are actively flipping the script.

So find ways to measure your progress, such as a paper chain or thermometer that helps you visualize your goal.

Every time you reach a milestone, find a free way to celebrate. Call a friend who is cheering you on. Hike a hill and scream out your accomplishment. Throw a dance party.

The point is progress. The money you pay towards your debt today will eventually go in your pocket and is yours to keep. That’s what you call a celebration.

Ready to get rolling toward a life without debt? Download the workbook.

Paying off debt