Whatever the amount (a couple hundred, a few thousand, or even more), being in debt can be terrible. And while you may feel you’re the only one carrying the stomach-sinking, mind-gnawing burden, trust that you’re not alone. So many of us are saddled with debt — 38% of Americans carry some kind of credit card debt and there are 43.3 million Americans with student loan debt — it’s not something to be ashamed of. But it is something that you should want to fix. That’s because when your debt has high interest rates, you pay even more money over the life of your debt. The average American pays over $6,000 in interest each year. I can think of so many better ways to spend that money!
Unfortunately, there’s no easy cure. Last spring, freelance writer Catherine New shared the inspiring story of how she paid down over $30,000 in credit card and student loan debt in less than five years. Commenters asked that we create a how-to guide to paying down debt, and here it is.
I teamed up with Refinery29 financial expert Priya Malani to create a completely unsexy, totally tough-love guide to paying down your debt. The tips ahead aren’t fun; to aggressively pay down your debt, you have to make some big sacrifices. It’s up to you to determine what you’re willing to give up. Even if you just pick a few of these tips to try, you’ll put yourself on track to make bigger payments and become debt-free faster.
Ordinarily, Priya recommends her clients at Stash Wealth put 20% of their after-tax, take-home pay toward debt. The advice ahead helps you rethink your spending so you can start paying off even more. With the right tools and a positive attitude, you can totally get out of this. Let’s get started, shall we?
First things first: You need to figure out where all your money is going. In our first 30-Day Money Challenge, Priya gave you a money workbook where you can track all your expenses. Here’s a link to the PDF. Download the workbook and spend an hour or two filling it out. This will help you get a better sense of where you can cut back and start saving more money.
Illustrated by Isabella DiMarzio.
Before you start cutting out stuff in your life, first make sure you’re not overpaying on your student loans. Priya and I offered a lot of advice on managing your student loans in this article, but one big thing you’ll want to look at if you’re trying to aggressively pay down debt is whether or not you qualify to refinance your loans in order to get a lower interest rate.
If you have only federal loans, you can refinance through the federal government. If you have a mix of federal and private loans, companies like SoFi or Earnest will help you with refinancing. (Psst: Follow this link to get a $300 bonus if you complete a refinancing plan through SoFi) SoFi customers save an average of nearly $19,000 when they refinance — that’s nothing to sniff at.
Yes, it takes some time to refinance your loans, but when your debt-savings amount is in the five-figure range, it’s worth it.
Illustrated by Isabella DiMarzio.
Once you get your student loans under control, turn your attention to your credit card debt. Consolidating your credit cards can be slightly more complicated. Look for credit cards that offer 0% APR on balance transfers. The catch with these cards is the offer usually only lasts for 12 to 15 months, and then the interest rate can go through the roof, undoing all the good work you did by consolidating in the first place. So, if you do decide to consolidate your credit card debt on one card, make sure you’re committed to paying off that balance within the time frame.
Illustrated by Isabella DiMarzio.
You’ve made some small steps to make sure your monthly payments are manageable. Now, you need to come up with a plan of attack. There are two methods of debt repayment that Priya recommends: Avalanche versus Snowball.
Say you have $5,000 in debt on one credit card, $7,000 on another card, and $25,000 in student loans. In order not to default, you have to make the minimum monthly payments on each. Snowball approach: Pay your minimums, then throw any extra cash at the smallest amount of debt until you conquer it. So pay down the $5,000 debt, then target the $7,000 debt, and then the student loans — with the idea that seeing results is excellent motivation.
The avalanche method focuses on interest rates, so you’ll be paying off the loan with the highest APY first, because that’s the debt that’s losing you the most money. So if that $7,000 credit card balance has a 23% interest rate versus your student loan at just 3.5%, you’re going to focus on that credit card debt, first. This way, you’re focusing on the loan that has the biggest financial impact on your bottom line first.
Note: If you do decide to consolidate your credit cards, you’ll potentially want to ignore either of these methods and first focus on paying off your credit card debt within the time period in which the 0% interest rate is available.
Illustrated by Isabella DiMarzio.
You’ve set the groundwork for aggressively paying down your debt and have decided on a repayment method. Now, it’s time to really set your plan in motion. Priya argues (and I agree!) that one of the most powerful parts of a debt payoff plan is knowing the end date. (To find your date, either call your loan provider or use an online calculator, like this one from Student Loan Hero.) With an end date in mind, you can create mini milestones to hit along the way, which will help you stay motivated.
Illustrated by Isabella DiMarzio.
Once you have the debt-payoff plan in place, along with refinancing your student loans and consolidating your credit card debt, you’ll want to automate your payments. There’s no reason you should ever, ever, ever have to pay a late fee for this debt. It’s such a huge waste of money, and the easiest way to prevent it is by setting up automatic payments. Set it, forget it, and focus on more fun things.
Illustrated by Isabella DiMarzio.
It’s time to start trimming your spending — aggressively. Spend a week writing down everything you spend in a money diary. Then, review that (and your money workbook) for any nonessential spending.
That coffee you bought on the way to work? Nonessential. Netflix. ClassPass. Spotify. All nonessential. The birthday dinner for your old college buddy you only see once a year? Completely nonessential. It’s time to cut those out of your life.
Granted, this can be really, really hard. And you may decide there are a few luxuries you can’t live without. It’s okay to keep a couple, but when you’re trying to aggressively pay down debt, every nonessential purchase you make is one less dollar that can be put toward your loans and credit card bills. So maybe it’s worth the sacrifice for a bit, especially when you’ve got that end date in mind. Alternatively, just take a break from one of those treats. For example, spend the warm months running outside instead of using ClassPass.
Cutting out nonessentials also means you make coffee at home, bring your lunch to work every day, eat (non-Seamless) dinner at home every night, and give up those $15 cocktails. How? Do happy hour instead. Throw a potluck dinner at your apartment. Start a lunch swap with your roommate. Look for free events and activities around the city. You can still have a life; you just need to be thoughtful about what you do when you do go out.
Illustrated by Isabella DiMarzio.
This may not come as a surprise, but nothing gives you the ability to pay down debt faster than bringing in more cash. There are typically two ways to do that: Go out and find a new full-time job that pays more, or get a side hustle and use the extra income to pay down debt.
Let’s start with the first one: Find a new job. Last year, I wrote a story about America's student loan crisis. I interviewed Student Loan Hero founder Andy Josuweit, who recommended people get higher-paying jobs in order to pay down their loans quicker. I was annoyed with the advice at the time, but the truth is, it’s not a terrible idea. Once you find that higher-paying job, you can take the offer (after you negotiate an even higher salary) or use it to leverage a better salary at your current gig.
Of course, there's a catch: You can't spend any of that extra money. Instead, use all the new earnings toward paying down your debt. Live like you didn’t even get a raise. You’re already accustomed to living on a lower salary, so it’s not a big sacrifice to not spend the new money.
If finding a new job isn’t an option, consider taking on a side hustle to earn some extra cash. In our 20s, my husband had a boring office job but also took on freelance writing assignments. We saved the extra money and eventually used it to buy an apartment, but it could have also gone to paying off his student loans faster. I also had a coworker who would bartend on weekends while holding down an office job. There are countless ways to make a little extra money. Sure, it will be tough, but you’re young — you can sleep when you’re dead. Right now, you’re trying to pay off this debt as quickly as possible.
Illustrated by Isabella DiMarzio.
Chances are, your rent is your biggest expense — Priya estimates that most people spend between 25 and 35% of their monthly take-home pay on housing costs. And a bill that big can hold you back from paying off your debt. Home is a sanctuary for many people, and they might be unwilling to make such a big sacrifice, but if you’re in aggressive debt-paying mode, spending less on rent can be a huge help. And remember: This is only temporary.
How to do this? You could move home. This works for some people, not for others. But if it’s an option, it’s a game-changer, especially if Mom and Dad aren’t charging you rent. Take that monthly payment and put it directly toward paying down your debt. If you’ve already been spending 20% or more of your monthly income toward debt repayment, you’ve just upped it to 40% or more, which means you can hit your goal considerably faster.
If you can’t move home, you can look for a less-expensive living situation, whether that means moving out of your place and into a cheaper apartment with roommates, or taking on a roommate in your current place.
If you own, you can always consider subletting temporarily and moving somewhere more affordable for a while, refinancing your mortgage, or even Airbnb-ing a room in your home, if you have space. I have a friend who decided to use Airbnb to rent out one of the three bedrooms in her place, so she could afford to stay there without full-time roommates after she broke up with her live-in boyfriend. It wouldn’t be my first choice as a money-saving measure, but it’s an idea to keep in mind.
Illustrated by Isabella DiMarzio.
There’s a TV show I keep hearing about where the host can supposedly go into anyone’s house and find $3,000 worth of stuff to sell. I think my apartment would be about empty if I were able to make that much money (Ikea bookshelves just don’t have much of a resale value), but unloading some of your stuff is a good way to make a little extra bank.
For those of you with a car, getting rid of it might be a big way to start saving/paying down more of your debt. First, you can use the proceeds from the sale toward your debt. Then you can take the monthly expenses (car and insurance payments, parking and gas costs) and put all of that toward your debt as well. That’s a lot of extra money. Obviously, it’s not realistic for everyone, but the point is that getting out of extreme debt means considering extreme solutions.
If you don’t have a car, look for other things you might reasonably be able to unload. These days, it’s pretty easy to make some cash selling your clothes online, as well as all those unnecessary kitchen appliances your grandma keeps sending, or the smartphones you don’t use anymore. Granted, there’s probably not thousands of dollars in sellable stuff in your apartment, but maybe at least a few hundred bucks?
You can use this to pay down your debt, or maybe just give yourself a break and spend it on something fun. You’ve been making a lot of sacrifices lately; we won’t judge if you splurge on an expensive dinner. Just don’t fall off the debt-paying bandwagon. You’re doing so well.
Illustrated by Isabella DiMarzio.
Alright, I know what you’re thinking: But I’m not in a relationship. So then, this card isn’t for you. Or maybe you’re in a relationship, and your S.O. has no debt, so they might not be so into such a big sacrifice. But if this does sound like a possibility, and if you can make it work, it’s worth it.
My husband and I have been (mostly) living by this for the past seven or so years. (I say "mostly" because we’ve both gone through periods of unemployment, when we had to live on one salary but weren’t really saving anything.) It works for us, and it has allowed us to do some aggressive saving so we could upgrade to a bigger apartment.
If you’re going this route, it’s important to take a hard look at the money diary you filled out at the beginning of this challenge, and have a frank conversation with your S.O. about how you’ll make it work. Maybe you live on one-and-a-half salaries. Maybe there’s another version that works for you. But if you are in a relationship, the sacrifice is doable, and you want to aggressively pay down debt/save for something big, this is always an option.
Illustrated by Isabella DiMarzio.
I was admiring my hairdresser's skirt yesterday, and she was telling me it was older than her teenage daughter. It didn’t look dated at all, and we both agreed that sometimes, shopping your own closet is the best.
Want to get that credit card and student loan debt paid off? Stop shopping. It sucks, but for those among us who love a challenge, an easy way to save some extra money is to simply stop spending. Can you go a month without buying something new? What about two or three or a whole six months? Before you hit “checkout” at Zara or Sephora or wherever, pause to decide if you really, really, really need that shirt/lipstick/etc.
You can make it a bit easier by getting rid of temptation. Unsubscribe from any store newsletters you might get. Spend the time you might be dropping things into an online cart doing something more productive (like "shopping"/organizing your closet). I love to shop, so I get this is definitely not an easy thing. But, if your goal is paying down debt, you just need to keep that end date in mind. This shopping break definitely isn’t forever.
Illustrated by Isabella DiMarzio.
This is a bit controversial, because having a credit card does help you build a strong credit score. And a good credit score is essential for everything from getting a job (yes, employers may look at your credit score before hiring you) to getting a mortgage.
But, for some people, credit cards offer too much temptation to spend outside of their means. If you are one of those people, you might just need to get rid of your credit cards altogether and use cash for everything.
There is a middle ground, of course. You could have one credit card and use it to make a monthly recurring payment, like your phone bill. This will help your credit score. But don’t carry that card with you, so there’s zero temptation to spend. You could also choose a card with a low credit limit, so you can’t be tempted to spend more than you can afford.
Illustrated by Isabella DiMarzio.
Like what you see? How about some more R29 goodness, right here?
I Talked To A Financial Psychologist To Get Through My $$$ Hang-Ups