I don’t know a single person who hasn’t experienced being in debt. Some see being in debt as a normal part of life, while others feel it is an enormous burden. Either way, in order to get ahold of your finances, debt management is crucial. We’ll discuss the definition of debt, how to figure out how much you owe, and your options for eliminating debts.

My Relationship with Debt

People’s experience with debt is usually linked to their environment. On a personal note, as far as I knew my father didn’t carry debt outside from the mortgage and his car payment. My mom, on the other hand, was pretty comfortable with debt. Not saying she loves it but it doesn’t phase her. Early on, I was comfortable with debt because there was no huge anti-debt sentiment in my household. You can check out my journey by clicking here.

So I went to school and took on loans I didn’t need. When I graduated from nursing school and got my first job, I quickly got a new car with financing. So that’s another loan. And I was always maxing out my credit cards. I was swimming in consumer debt! I honestly don’t know for sure what turned it around for me. What I am sure of is that getting ready for marriage was one of them. Knowing that finances can cause huge rifts in a marriage, I chose to rein in my spending. I was very modest with my wedding day expenses and started to build for our future. My husband had zero debt and was so anti-debt that I no longer felt comfortable having it. To be clear, he didn’t shame me for having it but his view of debt rubbed off on me. Plus, I felt he had way more freedom that I did. I wanted that.

What is the Definition of Debt?

Debt is when you borrow and owe something to someone else. For most people, the thing they owe is money. I borrowed money for school, for a car, and racked up credit card debt. Others may owe money for medical bills, owe on personal loans, or even payday loans. Most of this debt is unsecured debt. This means that the person or institution you borrowed it from required no collateral. As a result, the interest rate on this sort of debt is higher as the lender is taking on higher risk. Secured debt, like a mortgage, means that the lender can take it from you if you are unable or unwilling to pay. Because it is secured, the interest rate is significantly smaller. While I have a mortgage, which is a debt, I don’t feel the pressure of being in debt This is because I could sell the home to pay off the mortgage if I needed to.

Why Eliminate Debt?

The simple answer is to decrease your cost of living. Every bill you have means you have that many more expenses every month. As a result, it takes longer to get to a point where you can save for the things YOU want. With every dollar you earn, your lenders own some of that until you pay the debt off. Otherwise, they can make life VERY uncomfortable for you. After eliminating all my unsecured debt, I was able to save and invest so much more. Now I am able to save for repairs on my home and car, vacations, and for emergencies. I also have been able to maximize my investing. I hit the IRS limits for the first time last year on my retirement accounts, both my Roth IRA and my work’s 403b. After I fully funded my Roth IRA, I continued to invest in my brokerage account. Check out my financial update for more detail.

READ MORE: How to recession-proof your life in 6 steps

Step #1 – You Need to Have Savings

While you don’t have to have a full emergency fund, you need to have some money saved in case something unexpected comes up. How much that is depends on your lifestyle. If your expenses are low and your lifestyle is low-risk, then you don’t have to save as much initially as someone with more assets and responsibilities. Why does this matter? If your car breaks down, where are you getting the money to fix it? If you are using the same credit cards you are trying to pay down, you are not going to be able to pay down that debt effectively. So figure out the minimum amount of cash you need to keep you afloat. While you’re building that up, keep making the minimum payments on your debt.

Step #2 – Assess Your Debt

Time to get real. If you’re going to come up with a plan, you have to know the full scope of what you’re dealing with. That means pulling out your physical or digital pen & paper and writing out everything you owe. Checking your bank statements is a good start to find out where you’re making monthly payments too.

You also should note the interest rate you’re paying on each debt. This will assist you in prioritizing which debt to tackle first. This can be found in the statements associated with that debt.

Step #3 – Create a Budget

Why is a budget essential? Because you need to know how much money you can afford to set aside for debt repayment alone. Then you can decide how much money in this bucket you can divvy out to each debt. Without it though, you might overestimate or underestimate how much you can put toward debt repayment. Both will hinder your progress. A budget can be as specific or as vague as you like. You can check out how I created my budget or search Google for a budget template that best fits you.

Another reason why a budget is important is to make sure you’re not spending more than you make. Whenever you spend more than you make, you have to rely on debt to keep you afloat. If you keep making purchases you can’t afford on the credit cards you’re trying to pay off, you will not see much progress if at all.

Step #4 – Create an Effective Debt Reduction Plan

Now that you know how much money you can afford to pay, create your debt management plan. There are a few different strategies you can make use of. The most popular are the debt avalanche method and the debt snowball method. While these strategies are unique from one another, they both require that you focus most of your attention on one debt while making minimum payments to the others. The debt that you focus on remains your focus until that debt is completely gone. Once that debt is gone, you can use the money that went toward that first debt and apply it to the next debt of focus. That second debt you were already making minimum payments on. You will continue to make that minimum payment PLUS the payment you used to make on the first debt. If that doesn’t make sense to you yet, keep reading. It will.

The Debt Avalanche Method

The debt avalanche method asks you to focus most of your attention on the debt with the highest interest. Why? This is the debt that will cost you the most in the long run. Once you finish paying off that first debt, you move on to the next, and so on.

Let’s use a simple example to help you visualize it better. Let’s say you have two debts. Debt #1 is for $1700 at 16% interest with a minimum payment of $75 and Debt #2 is for $1000 at 14% interest with a minimum payment of $35. You have $400 each month that you can put toward debt repayment. $35 of that $400 goes to Debt #2. That leaves you with $365 that you will put toward Debt #1 every month. It would take you about 5 months to pay off. Month 6, you only have one debt left. You will take the $365 you used to pay Debt #1 with and add it to the minimum payment of $35 you pay Debt #2 with. So in month 6, you will put $400 toward Debt #2. You will keep doing that until that debt is paid off. Then you’ll be debt-free!

The Debt Snowball Method

I personally prefer this method. While the logic of numbers favors the debt avalanche approach, the debt snowball method is psychologically more satisfying for most. You see the effects of the efforts you’re making much faster. You make the debt of focus the smallest debt you have listed and pay them down from smallest to largest. Because it is the smallest, it will be the fastest to pay off. Then you take that payment and apply it to the next debt.

Let’s use the same example. You have two debts. Debt #1 is for $1700 at 16% interest with a minimum payment of $75 and Debt #2 is for $1000 at 14% interest with a minimum payment of $35. You have $400 each month that you can put toward debt repayment. $75 of that $400 goes toward Debt #1. That leaves $325 to go toward Debt #2. It would take you about 4 months to pay off. Month 5, you only have one debt left. You will take the $325 you used to pay Debt #2 and add it to the minimum payment of $75 you pay Debt #1 with. So in month 5, you will put $400 toward Debt #1. You will keep doing that until that debt is paid off. Then you’ll be debt-free!

Pick whatever method will work best for you in keeping you motivated. Use a debt repayment calculator to help you weigh out your options. It will tell you how long you could expect it to take to pay off the debt based on the amount owed, the interest rate, and how much you intend to pay.

Other Options to Consider

Look for ways to make more money that you can put towards your debts. There are TONS of side hustle options out there. Find one that fits you and your lifestyle and put as much of that extra money toward your debt repayment.

READ MORE: I Did Uber Eats for a Week – Learn How to Best Use It to Actually Make Money

Look for ways to decrease your interest rate. If your credit is ok, you can look to debt consolidation loans that may have a lower interest rate than what you are paying currently. Some loans can be refinanced at a lower interest rate. Some credit cards have 0% balance transfer options. You first have to qualify for these cards and could only borrow up to that new card’s credit limit. There’s usually a one-time fee associated with the process too. However, they will pay off all the high-interest debt you assign to it and give you 12-18 months usually to pay that debt off at a 0% interest rate. I made use of every single one of these tools and I am debt-free today.

You can potentially get an interest-free, fee-free loan from a friend. Be careful though. This can be a very damaging route to take. Money disputes can ruin relationships. So if you’re going to ask a friend or family to borrow money, make SURE the plan you have is rock solid. If your job situation is shaky or there are expenses coming that will make it harder for you to repay your friend, don’t do it. If you think you can pay your friend back as promised, try to borrow the smallest amount of money possible.

Bonus: Know When to Ask for Help

If all this and all the Google searches in the world can’t keep this information from going over your head, you may need outside help. The most cost-effective option is talking to a trusted friend that is better at managing finances and can help you to create a plan. This has to be someone you trust not to make you feel bad about your debt and won’t spread your business out there. Make sure this friend is not someone you THINK is good with their finances but that you KNOW is good with their finances. You can tell by the choices they make whether or not they are a good person to ask. They should either be where you want to be or well on their way to getting to where you want to be.

Don’t have a trusted someone like that? Look into meeting with a financial advisor or a financial coach. Make sure to pick one that has your interests at heart. There are debt management programs out there too. They can come at a steep cost though so do your research before signing up.

READ MORE: Do You Need a Financial Advisor to Manage Your Money?

Your turn. What is your experience with debt? What tools are you using or have used to achieve debt freedom? Share in the comments below.