Yahoo Finance How To Eliminate $50,000 of Debt in 3 Years
According to Experian, the average American owes $23,317 in non-mortgage consumer debt. But what about those who owe double the average? A $50,000 debt could suffocate an ordinary household for decades — but it doesn’t have to.
In fact, with a good plan, some strategic sacrifices and rigid self-discipline, even average earners can crawl out from under in just 36 months.
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“If you split up $50,000 evenly over three years, you’ll need to pay off almost $17,000 a year, which is over $1,000 a month,” said Melanie Musson, finance expert with InsuranceProviders.com. “Reaching that goal will take commitment, but it can be done.”
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Eight Steps, Three Years
Emma Davidson holds an MBA in finance from New York University. A veteran finance advisor and high-risk payment consultant who currently serves the business software firm eMerchant Authority, Davidson has an eight-step process for beating a $50,000 debt in just three years.
Create a budget: Track your income and expenses, assign a purpose to every dollar and cut unnecessary spending wherever you find it.
Organize and prioritize your debts: List all your debts by interest rate, focusing on the highest first — the avalanche method.
Increase your income: Seek a raise, start a side hustle or sell unused items.
Set up automatic payments: Aim for $1,400 a month toward debt.
Negotiate interest rates: Contact creditors for lower rates.
Consider debt consolidation: If eligible, consolidate your debts for lower overall interest.
Avoid new debt: Use cash or debit for purchases.
Celebrate milestones: Reward your progress to stay motivated.
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In Reality, You’ll Probably Have To Compromise on the Big Things
Musson agrees that the process starts with getting organized and tracking your income and expenses. Only then can you identify spending leaks, plug them and redirect the difference to your debt.
“The first step is to work on your budget and eliminate as much spending as possible,” she said.
But $50,000 divided by 36 months is $1,389 per month — and you’re not going to get that by cutting out lattes and canceling Hulu any more than you’re going to find it in your couch cushions.
Downsize Your Living Space or Learn To Love a Roommate
The hard truth is that the most plausible solution lies much closer to home than Starbucks.
“Many people can eliminate over $1,000 of spending a month if they can reduce their housing costs,” said Musson. “If someone is renting an apartment or house, they should consider moving to smaller accommodations, and someone who owns their house should consider getting a roommate to share costs with. If you like having your own space and are averse to the idea, remember that it’s a three-year sacrifice to accomplish a goal and free up your finances.”
Sell Your Car and Buy a Cheaper One or Learn Your Local Bus Routes
Your other best opportunity for financial breathing room is in your driveway.
“If you have an expensive vehicle loan that you still have more than a year left to pay, you should consider selling that vehicle and getting a car where you’ll pay half of what you’re paying now,” said Musson. “Getting a less expensive vehicle can help you save more money every month, so you can allocate the savings toward debt repayment.”
Interest Is Everything: Find the Lowest Possible Rate To Stop the Bleeding of Finance Charges
Davidson mentioned consolidating high-interest debt into one cheaper, fixed-rate loan. That’s the real key, because if you are battling revolving debt from multiple credit cards, the finance charges will require you to come up with a whole lot more than $1,400 per month — or more years.
According to CBS News, the most affordable loans in today’s high-interest environment are, in this order:
Home equity loans
Home equity lines of credit
Personal loans
The outlet also suggests transferring existing balances to credit cards with 0% introductory APRs. If you qualify, you can shelve a good chunk of that $50,000 for a year and a half or more, while you grapple with the more expensive remainder. If not — or even in conjunction with balance transfers — consider borrowing from a cash-value life insurance policy, or, if your employer’s plan allows it, borrowing from your 401(k).
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This article originally appeared on GOBankingRates.com: How To Eliminate $50,000 of Debt in 3 Years
