Stop the Bleeding: Get Out of Debt Like Your Life Depends on It!

You’re in crisis mode! Your monthly bills are too high, and your pay is too low. Debts and loans are covering the difference, and it’s just not sustainable. Or, slightly better, you’re draining savings, but this won’t last long. It’s a hard place to be in and it sucks. But, if you’re serious about getting financially healthy, you can definitely do it, given discipline and time. Here’s where to begin digging yourself out!

Lower your expenses

Ruthlessly cut your bills with some or all of the methods below, using multiple options at once:

1. Track all of your spending and be completely honest with yourself about what expenses belong in which category. Then, once you have a complete and accurate assessment, you’ll be ready to look at all the options below. Timeframe: 1-2 days to do the analysis, but look back at 6-12 months of spending history from your credit cards and bank accounts.
2. Start with interest payments—can you negotiate a lower rate? What about a consolidation loan? Nobody enjoys paying interest, so cutting down these expenses will be the least painful cuts you can make. Student loan consolidations take a while, but these types of restructuring plans could save you a ton of money over the long run. Medical debt especially should have room to negotiate, so ask for a payment plan without interest to see what’s available. Be bold, but remember: you do owe this money. Timeframe: 2-3 months
3. Pick a method to tackle the repayment of your loans. There are various fancy names like “debt snowball” and “debt avalanche”, but just pick the one you can actually stick to. We’ll have a full article on all these self-binding psychology tricks pretty soon, but for now just know that our simple recommendation is to start paying extra toward the highest interest rate loan first. This is usually a consumer credit card. And remember to pay at least the minimum amount required on all the other loans you’ve got as well so that you don’t ruin your credit score. Timeframe: 1 day to begin, maybe years to pay everything off.
4. Stop all entertainment, eating out, fun money, travel, hobby, convenience expenses (like deliveries or online shopping). This includes clothes, which can quickly add up even when you’re buying ultra-cheap imported “fast fashion”! If you made an entertainment purchase and the funds are truly lost, like a future non-refundable travel booking, try to sell it. If you can’t sell it, give it to a friend since you would need to spend even more money to go on that trip. Note: For annual subscriptions, be sure to cancel even if you can’t get a refund. At least you’re preventing an auto-renewal that will surprise you next year. Timeframe: 1 week.
5. At this point, find a team of accountability partners. This might be “loud budgeting” or some other commitment device to you spend less and actually pay down your debts. Tell your roommate, counselor, mentor, pastor or trusted leaders at church. Let your friends and family members know what you’re doing. Join a free online community like https://www.reddit.com/r/debtfree/ to ask for advice and get encouragement. Whichever group you choose, ask your accountability team to help you stay committed as you write down your goals to spend less with an aggressive-but-realistic timeline for paying off all your loans, especially credit cards.
6. Pause long-term saving and investments. It doesn’t make sense to take on credit card debt at 27% to fund an investment account. Even with the magic of compounding, the math doesn’t work, but please resume saving once you’re above water again. Timeframe: 2-4 weeks, probably depending on your payroll cycle.
   • The one exception to this blanket statement is that you should still save enough from your paycheck to get your company’s retirement plan match, if you’re lucky enough to have that. For example, your employer might match every dollar you contribute, up to 3% of your paycheck. That’s an instant 100% return, so contribute enough to get all of that match.
7. Reduce your housing expenses with some combination of the following three ideas. Ultimately, you shouldn’t make any cuts that will destroy your long-term recovery, but if your housing situation is financially unsustainable, now’s the time to act. Timeframe: 1-6 months.
   1. If renting, try to renegotiate your rent or move if you can’t; if you have a landlord you know well, is he/she open to barter or having you use your skills to help offset the rental fees?
   2. Look for a roommate to share expenses with.
   3. Sell your house, or rent it out and live with friends/relatives. This is a drastic step, but it’s necessary if you’re over your head and don’t have a path to increase your income so that your housing expenses are in the 20%–30% of your income range. Note: if you decide to rent your house, be sure to do the math and double check that you’re actually making money after all your maintenance expenses, taxes, management expenses, etc. If you don’t really want to spend the time to be a professional-caliber landlord, it’s better just to sell the property.
8. Finally, try to reduce even “non-discretionary” expenses as far as possible. Drive less by combining trips, reduce heating/cooling bills (dress warmer, close off portions of the house, open windows in the summer), use a clothes line to dry clothes instead of the electric dryer, shop at a bargain grocery store and prioritize simple grains, less expensive protein, and buy lower cost vegetables (cabbage, carrots, etc.). Supplement this food with visits to a local food pantry or assistance programs like SNAP/EBT/WIC or Medicaid, if you qualify. Timeframe: 1 week to reduce consumption, or several months (for government paperwork on aid programs).

Increase your income

At the same that you’re reducing expenses, try to get new sources of money coming in, whether it’s a one-time sum or regular, weekly income:

Ask for more hours at work—this is the easiest, quickest way to earn more, and might be the most profitable if you qualify for overtime. Bonus: the more you work, the less time you’ll have to go out and spend money, which is exactly what you need right now. If you’re salaried, though, you might not easily be able to scale your income at your current job, so check out the next point about second jobs and side hustles. However, keep in mind that working more might earn you a bonus or promotion, either of which might provide more income than a side gig. Timeframe: 1 month.

Get a second job or side hustle, but only if there are next-to-zero startup expenses. Don’t fall for the trap of investing money into a new venture right now, especially if it’s a get-rich-quick scheme. You don’t need a new car (and car loan) or fancy equipment or flashy clothes to create a successful part-time gig. Just bust your butt with what you have and get out of debt super fast. Note: do the math before you work in a gig job. If you have a reliable, fuel-efficient car with low maintenance, then driving for Uber/Lyft/GrubDash could make sense, but be sure to factor in all the costs, including insurance and depreciation, and always prefer extra hours at your main job instead. The smartest drivers, I think, are the ones that work part-time only during the peak, highest-paying hours, and focus on growing their main jobs the rest of the month. Timeframe: 3-6 months.

Return any recent large purchases, or sell what you can’t return if you can reasonably predict you won’t need to buy it again in the next 1-2 years (chances are you didn’t need it to begin with—I’m guilty of these types of purchases as well!). However, don’t sell income producing assets, like the tools for your job or your main commuting car, unless you have cheaper alternatives that actually save you money. Cars are especially hard to sell because they depreciate so quickly, so only sell yours if you can reasonably use public transportation or have another way to get around. Timeframe: 1-3 months.

If your spouse or partner isn’t currently working a paid job, now’s the time to ask him or her to begin earning money. The critical factor here will be childcare—can you find a job where the pay significantly exceeds any extra expenses you have to make sure your kids are safe? Lean on family and friends or find work-from-home opportunities. If you don’t have kids, both partners are healthy, but only one of you is working, it’s time for you both to step up so that you can finally get out of debt. Timeframe: 3-6 months.

Hazards and mistakes to avoid

While you’re reducing your expenses and growing your income, be careful of the following traps:

• Don’t take on more debt, even if it’s associated with more income, like a for-profit trade school
• Zealously avoid gambling, lotteries, or any “investments”; your journey to get out of debt might take years, so you probably won’t find any shortcuts and you shouldn’t fall prey to the curse of false hope
• Don’t burn any bridges or alienate those around you as you get extreme about your debt-free lifestyle; you’ll need your friends’ support now more than ever
• Don’t sell anything you know you’ll have to buy back in the next year or two, and don’t sell stuff that is earning you positive cash flow/income
• Don’t be afraid to ask for help or feel like you have suffer alone, but instead now’s the time to admit that you’re in need and give others the chance to assist with advice, money, childcare, groceries, diapers, or other stuff you need that they can bless you with
• Don’t pay extra for convenience on anything, even if it saves you money
  • Tools or services like Rocket Money to track down subscriptions and cancel them will save you money, but at a cost, so you’ll save even more by doing the work yourself to track down and cancel bills; what’s more, the effort of canceling all these unneeded recurring bills will help you avoid getting into more of these subscriptions in the future
  • Don’t buy a budgeting app or pay for tax prep or attorneys at this point; instead, use Google Sheets to budget and track spending for free and make sure to choose a free version of tax software from a reputable brand like TurboTax