Getting out of debt can feel like a never-ending journey. You make progress and then something happens and you find yourself back at square one. If you’re looking for some unique ways to get out of debt, here are five weird ways to get out of debt that might just work for you.
If having debt is normal, being debt-free is weird.
1. Debt Snowball
The debt snowball method is where you focus on paying off your smallest debt first while making minimum payments on your other debts. Once your smallest debt is paid off, you move on to your next smallest debt and so on until all of your debts are paid off. The benefit of this method is that it gives you quick wins which can help keep you motivated as you work your way through your debts.
2. Debt Avalanche
The debt avalanche method is where you focus on paying off your debt with the highest interest rate first while making minimum payments on your other debts. Once your highest interest debt is paid off, you move on to your next highest interest debt and so on until all of your debts are paid off. The benefit of this method is that you save money in the long run by paying less in interest charges.
Why You Should Do a Debt Avalanche
The biggest reason to do a debt avalanche is simple: It saves you money. By targeting your debts in order of interest rate, you’re guaranteed to pay less in interest over time—which means you can get out of debt that much faster. For example, let’s say you have $5,000 in credit card debt with an 18% interest rate and another $5,000 in student loan debt with a 6% interest rate.
If you used the debt snowball method and tackled the credit card balance first, it would take nearly seven years to pay off your debts and cost you $3,180 in interest. But if you used the debt avalanche method and tackled the student loan balance first, it would take just over five years to pay off your debts and cost you $2,430 in interest. That’s a savings of $750! Plus, you’d be out of debt two years sooner.
How to Do a Debt Avalanche
Step 1: Make a list of all your debts from smallest balance to largest balance—but don’t include mortgage or other secured loans. Include the name of each lender, the outstanding balance, and the interest rate for each debt. (If any debts have multiple interest rates—like many student loans—include the average.) This list will be your roadmap for repaying your debts.
Step 2: Choose a repayment timeline. Decide how quickly you want to be out of debt—whether it’s two years or 10—and calculate how much extra you can afford to pay each month beyond the minimum payment required by each lender. (Not sure how much extra you can afford? Use our Debt Reduction Calculator.) Then add that amount to each minimum payment on your list until every lender is receiving at least that amount each month.
Step 3: Make your largest payment first—on the loan with the highest interest rate—and apply any additional money towards paying down that principal balance as quickly as possible. Once that loan is paid off completely, move on to looking at ways to accelerate repayment of your second-highest loan—and so on until all your loans are gone for good!
3. Negotiate with your creditors.
If you’re having trouble making ends meet, one option is to reach out to your creditors and negotiate a lower interest rate or new payment plan. This might feel like a daunting task, but it’s worth taking the time to pick up the phone and make the call. You never know what kinds of options might be available to you unless you ask.
Here are some tips for how to successfully negotiate with your creditors:
Be Prepared: Before you even start negotiating with your creditor, it’s important that you have a clear understanding of your financial situation. This means knowing exactly how much money you owe, what your monthly expenses are, and how much income you have coming in. Once you have a good handle on your own finances, you’ll be in a much better position to negotiate with your creditor.
Be Honest: When you’re negotiating with your creditor, it’s important to be honest about your financial situation. Don’t try to hide anything or downplay the seriousness of your situation. Creditors are more likely to work with you if they feel like you’re being upfront and honest about your circumstances.
Be Flexible: Once you’ve explained your financial situation to your creditor, be prepared to offer a few different repayment options. It’s often helpful to propose a few different scenarios and see if the creditor has any flexibility in terms of how they’re willing to work with you. Remember, the goal is to come up with an agreement that works for both parties.
4. Sell some stuff—or better yet, have a garage sale.
We all have stuff lying around our homes that we don’t use—clothes we never wear, books we’ll never read, knick-knacks we don’t need. Why not turn that unused stuff into cash by selling it? You can have a garage sale, sell items online, or even donate items to charity and get a tax deduction (just make sure to get a receipt). Any little bit helps when you’re trying to get out of debt!
5. Cut Up Your Credit Cards
This may seem like an extreme measure, but it can be very effective. If you’re someone who struggles with credit card debt, cutting up your cards can help you break the habit of using them. Once your cards are gone, you’ll be less tempted to spend money you don’t have.
There’s no “right” way to get out of debt; it’s whatever works best for your unique financial situation. If you’re feeling stuck, try one of these five weird ways to get out of debt and see if it helps jumpstart your journey to financial freedom.