Debt can be a dangerous thing. While it can help you get something that you could not otherwise afford, when it’s not managed correctly, it can lead to financial and mental health problems. If this sounds familiar to you, there is hope to be consumer debt free. Here are some steps you can take to dig your way out to a better, more financially stable future.
What is considered consumer debt?
Consumer debt is any debt an individual incurs for personal, family, or household purposes. In other words, anything that’s not an investment or can be considered necessary debt is consumer debt.
Does a car count as consumer debt?
Yes, it does.
This is because a car with debt attached is not necessarily a “need.” Some cars can be purchased in cash and other modes of transportation. But it’s important to keep in mind that consumer debt isn’t always “bad,” and you have to do what’s needed. But simply put, a car note is consumer debt.
Yes, but not consumer debt like other loans. Because a home is part of your “four walls” — ie. an important part of living, it’s not considered consumer debt when you have a mortgage.
Why is consumer debt a problem?
While consumer debt isn’t a huge problem as long as it’s manageable, many people are thousands and thousands of dollars in debt that they don’t have plans to pay back or can’t pay back due to other circumstances.
Because of this slippery slope, when people can’t pay their debts, they can’t save or invest, they can’t focus on other items (like better education), and they can’t get into “good” debt (like a mortgage) because they already have too much. This, in turn, affects the economy and other households too.
Related: Why Is It Important to Pay Off Debt?
What are the effects of consumer debt?
While some debt can stimulate economic growth, too much can harm many people.
For example, households that are deep in debt report…
- lower happiness,
- higher rates of depression,
- and even physical ailments like high blood pressure.
And, when multiple households owe too much in consumer debt, the economy can take a turn too. Think back to the pandemic days, when people were being laid off, maxed out credit cards, and couldn’t afford to pay their rent because they couldn’t work. This has had a lasting effect on the economy, and many people are just now slowly digging themselves out.
What does it mean to live debt free?
Remember that being debt-free simply means having minimal debt, and no consumer debt. Being debt-free doesn’t always mean that you don’t have a mortgage or bills ever again. It means you’re consumer debt free and living within your means. Although, some people are mortgage debt-free too, so it can be a great goal to have!
Is it good to be completely debt free?
Yes, it is!
When you’re no longer spending a bunch of money to pay off debt, you can focus on other financial goals. This includes saving, investing, and even taking chances into entrepreneurship or early retirement. You can’t do these things as easily when you’re thousands of dollars in debt.
Now that you know what it means to be consumer debt free let’s talk about the six steps you can take to reach it.
1) Create a Budget
There are many reasons to get out of debt. Creating a budget is key when it comes to getting out of debt. A budget can help you see where your money is going and how much you can afford to put towards your monthly loans.
There are several different ways to create a budget, and you don’t have to be tech savvy to do a great job of tracking your finances. You can use a pen and paper, or you can use online tools like Mint or Excel. The important thing is to tailor your budget to your unique needs and spending habits.
2) Cut Expenses
The next step on the road to getting debt free is cutting expenses. This means evaluating your spending habits and finding ways to reduce your monthly outflow. There are many ways to do this. Some steps will be more difficult and need a lot more commitment than others.
Start by reviewing your cable bill and see if there are any channels you don’t watch. Perhaps you can downgrade to a less expensive plan or cancel your subscription.
You could also save money on groceries by cooking at home more often and avoiding processed foods. If you have a car, consider downsizing to something smaller and more fuel-efficient.
If you’re feeling overwhelmed by the amount you have to pay back, know that you’re not alone and there is a way out. This certainly isn’t our first option, but if you feel you can’t get out of debt on your own, or without combining all your debts into one payment, then we’re okay with it.
When you consolidate your debt, you work with a third party such as a credit counseling agency or a consolidation company to combine all of your debts into one loan.
A good example of this is student loan debt. If you still have outstanding balances from college, you can refinance the loans into one single loan, leaving you with better repayment terms and, in most cases, a lower interest rate.
But remember that student loans are considered consumer debt and can take a big chunk out of your monthly budget that could go towards paying off other debts (like credit cards). The less you pay on low-interest debts, the more you can throw towards consumer debts.
4) Negotiate Interest Rates
You can do a few things to negotiate your interest rate on debt. You can call the company and ask for a lower interest rate. Sometimes, the company will give you a lower interest rate if you are a long-time customer or if you have a good credit score.
If the company won’t give you a lower interest rate, you can try to get a lower rate by refinancing your loan. Transferring your debt to a card with a low-interest rate is also an option.
Side hustles have really started to trend. People are realizing that additional paid work outside their main income can afford them things like extra savings opportunities, vacations, a down payment for a house, and a way to decrease debt aggressively.
The best part about considering a side hustle is that there are so many opportunities; you can pick something that makes sense for your goals and life so that you are not burning the candle at both ends just to get ahead.
Some will utilize freelance platforms and pick up odd jobs virtually, such as…
- guest blogging,
- calendar management,
- and even making travel arrangements for CEO’s and other businesspersons.
Others elect a more traditional route and find a part-time job that can be done in the evenings and on the weekends, such as waiting tables or babysitting.
Whatever you decide to pick matters less than what this additional income can do for your debt repayment goals. Be sure not to let this money create a lifestyle creep and that you are being responsible and staying the course.
6) Utilize Your Community
Think about the common places you spend money, or even the biggest pieces of your budget, and try to find creative ways to trim down a bit.
One good example is child or pet care. If you are someone who pays for child or pet care during the workday, you probably know other adults doing the same. To cut down expenses, maybe you propose time-sharing this need 1-2 days a week with each other for free instead of paying out for the service.
While not everyone’s job would be conducive to having extra children or animals in the house, if you can work it out, the savings on daycare alone can create extra space in your budget to allocate funds towards debt.
Community gardens, free social clubs, and free group fitness are great examples of ways to tap into your community to save money.
Becoming Consumer Debt Free: It’s Easier Than You Think
Becoming consumer debt free doesn’t have to be complicated or take forever to reach. With these steps, you can easily pay off more consumer debt and be debt free faster than you think!
AUTHOR Kimberly Studdard
Kim Studdard is a project manager for online entrepreneurs and small businesses. When she isn't spending time with her daughter and husband, or reading her growing pile of horror books, you'll find her working on her HR degree and working towards FIRE.