Today we have a guest post by By Josh Wilson, a Millennial working to become his generation’s personal finance thought leader. Josh dreams of a day when all Millennials can thrive through financial literacy and patience to pay off student loans faster.
If you are like many Americans, you might have a significant amount of debt. Whether it is from student loans, credit cards, car loans or any other form of debt, owing money is a fact of life for many people in the United States.
In 2016, the average American household had $132,529 in debt including mortgages. But the good news is you don’t have to stay in debt; with smart planning and hard work, you can get out of the red and work towards your financial goals.
Know It’s Not Impossible
I know that getting out of debt is possible because I have done it myself. When I was a recent college graduate, I had over $31,000 in student loans. To put it in perspective, $31,000 is above average today, and I graduated some time ago when that average was actually lower. I had also racked up more than $1,500 in credit card debt shortly after leaving college.
Having this level of debt — particularly as a young professional just starting out — can be overwhelming. It was even more stressful when I started moving towards personal goals such as getting married and having children. I knew excessive debt and my preferred path forward would not mix. I couldn’t be living paycheck to paycheck when I needed to be saving for my kids’ college.
I Paid Off $26,000 So Far…
As an IT professional, I make a decent salary, but it still took a fair amount of dedication to pay off my debt. My original student loan debt of $31,000. I now have less than $5,000 left to pay off and I completely paid off that original sum of credit card debt.
How Did I Do It?
1 ) List out my outstanding debts and the interest rates on each loan or credit card.
This allowed me to see the full scope of the problem to be tackled. Then, I made a game plan for how I could attack it. Understanding the nature of my debt was a critical first step — and should be for you as well if you are looking to get out of debt. I knew that I should prioritize tackling high-interest debt first.
2) I took steps to lower my interest rates.
My credit card had the highest interest rate by far, but I was able to transfer the balance to another card with a low introductory interest rate. Then I worked on paying it off quickly while the interest rate was low.
My student loans took a little longer when it came to lowering the interest rate. I refinanced my loans at a lower rate when I had approximately $12,000 left in student debt. Doing helped me manage my student debt considerably, but I still have some debt left! Despite this, they are not an issue at the moment which I just mentioned.
3) I slashed my budget considerably to save money
4) I picked up side jobs to earn extra money.
I also do a number of different jobs on top of my full-time job as an IT professional. This ranges from freelance IT work four days each month to mowing lawns, selling baked goods at community events, to selling items on eBay.
5) I did NOT go and buy a new car.
I only drive used cars to avoid car payments, which allows me to put extra money towards my student loans each month. Every extra dollar that I earn goes directly towards my debt with the ultimate goal of getting completely out of debt. Side hustles can be a fantastic way of working your way out of debt, enabling you to supplement your income. On top of that, it helps you manage credit card debt in general which never really disappears.
Coming up with a strategy and sticking to it is vital to paying off your debt. Start by making a list of what you owe and the interest rates on your debt. Then see if you can lower your interest rates, and then pay off the debts with the highest interest rates first. Finally, do what you can to save money or earn more money so you can devote extra money to your debt. While working side hustles and living on a budget is not always easy, it can help you towards a debt-free future.