5 painless ways to start digging yourself out of debt


Digging yourself out of debt requires taking a hard look at your income, your spending habits and your total debt. You can start getting your financial house in order by accessing a copy of your credit report, which will allow you to check for errors, make a list of your debts and calculate your total indebtedness.

1. Develop a repayment strategy
Once you have a total debt figure, come up with a strategy for reducing that figure to zero. Paying off debts with the highest interest rate first — typically credit card debt and unsecured loans — will save you in interest payments over the long haul.

Some financial advisors suggest paying off smaller loans first even if they come with lower finance charges, and yes, there is a lot of satisfaction in retiring a debt and eliminating a monthly payment. However, this strategy will leave higher interest rate debt burning a hole in your budget.

Treat your credit card payments as you would an installment loan by making regular monthly payments. Always pay more than the minimum required. If you continue to use your credit cards, any new charge you make each month must be added to the monthly payment. This requires discipline. Every time you pull out your credit card, make sure you have the funds to pay for your purchase.

2. Make lump-sum payoffs
Social media and online marketplaces such as Craigslist and Facebook Marketplace make it easy to liquidate assets you no longer use or need. That espresso maker you only used twice or that motorcycle you no longer ride can easily become a source of cash. If your closet is filled with barely worn clothing, sell them through re-sale websites such as thredUP. If you have a storage unit, take an afternoon to weed out items you no longer need and sell them. Set a goal of emptying the entire unit to save yourself the monthly rent.

Apply the money you earn — as well as any other new income, such as tax refunds, salary raises and inheritances — to your debt.

3. Seek out ways to reduce interest rates
Call your credit card companies and ask for a lower interest rate. You may get balance transfer offers with low initial interest rates, but these usually come with a transaction fee, so be sure to compare the fee to the amount you will save in overall interest. If you are carrying federal student loans, look into the Federal Direct Loan Consolidation Program. This may reduce your interest payments.

If you own a home, you might want to tap into your home equity. Generally, you don’t want to replace short-term debt (debt that must be paid down within 12 months) with a long-term second mortgage, but going the home equity route may be a good option. Again, do the math and don’t overlook closing costs in your calculations.

4. Cut spending
Working within a budget is essential for tackling debt. You must know exactly how much money you have coming in and where it is going each month. Do a line-item audit of a month’s expenses and look for any money you can squeeze from each expense to put towards your debt reduction plan. Skipping a $50 restaurant meal means you have $50 you can throw against that credit card bill. Watching the balance drop will feel just as good as eating dinner at your favorite restaurant.

Take inventory of your monthly bills, too. Are you paying for magazine subscriptions, media streaming services or gym memberships you don’t use much? Cut out the daily $3 latte, brown bag your lunch and clip coupons. Contact your cable and internet service providers. You may be eligible for new promotions that will reduce these bills.

Finally, look at your homeowner and auto insurance policies and consider whether you can handle higher deductibles in order to get lower premiums. If you have been renewing your auto policy year after year without review, do some online research and look at other options. Underwriting formulas regularly change, so you might be able to find a lower rate, even with your current provider.

5. Identify new income sources
A thriving gig economy has developed over the course of the past decade. Businesses and individuals regularly seek out freelancers for everything from pet-sitting to consulting services, so consider turning your skills and talents into cash with a side gig. Advertise your services online, or do it the old-fashioned way with flyers on community bulletin boards. If you enjoy driving, you may want to check out opportunities with a ride-sharing service.

Finally, your choice of financial institution will make a difference in how quickly you can pay down your debt. You may feel like reorganizing your finances is an overwhelming task, but City Credit Union can help. We offer free one-on-one financial counseling to help with budgeting and financial planning. Plus, a credit union membership gives you access to financial products that are a better value than those found at a traditional bank.