Debt is a drag. Excess debt can affect you physically and mentally. There’s an emotional cost to carrying debt. Struggling to pay off debt can lead to depression and anxiety. Money issues are a prime factor in divorce. Debt is a significant source of stress. On the other hand, getting out from under debt offers a sense of relief and freedom. Learn ways to eliminate debt and improve your life.

Keep reading to learn the best ways to eliminate debt and then at the end, you’ll understand why getting out of debt and learning the tools to stay out of it is so important.

Ways to Eliminate Debt

Are you often shocked when receiving your monthly bank statement because you had no idea you had spent so much? Before you can eliminate debt, you must track your spending. Use a spending tracker to keep tabs on every purchase you make. After using the tracker for a month, examine your spending and consider the following:

• What surprised you regarding expenses?
• How many of your expenses are really necessary?
• What fees are you paying on credit cards and other financial instruments? Can you eliminate them?
• Are you paying for services or subscriptions you rarely use?

Also look at your normal weekday expenses vs. those incurred on your days off.

Once you know where your spending is going, you can decide what you don’t need or how you can cut back. It’s crucial to understand how and why you got into debt. To eliminate debt, you need to change the habits that got you to this point. If you’re lucky, you may pay off your current debt simply by making spending adjustments.

Develop a Budget

Develop a budget and stick to it. Create your budget by collecting all of your regular bills. This typically includes:

• Monthly rent or mortgage
• Car payment
• Utilities
• Insurance
• Cable or streaming services
• Childcare
• Healthcare

Separate needs from wants. You need to pay for a roof over your head and to keep the lights on. Perhaps you want a gym membership, but is it really necessary? Can you get the same amount of exercise by walking or running? Trim debt by eradicating the wants until you can comfortably afford them, and concentrating on paying for your needs.

Pay Bills in Full

Aim to pay all bills in full and on time. That may not be something you can accomplish until you have reduced your debt burden, but it’s the goal. It’s also a good way to raise your credit score. Once you can pay all of your bills in full promptly each month, you are on the right track to eliminate debt.

Avoid Credit Cards

Used responsibly, credit cards are a convenient way to pay for all sorts of goods and services. However, it’s easy to buy things you really don’t need or can’t afford when you have a credit card or app handy. Rather than use credit cards, pay your bills with your debit card or old-fashioned cash. Numerous studies show that people spend more when using credit cards than cash. Impulse buys are more common, as are buying items at higher prices.

There are times you may need a credit card for emergencies. Keep the credit card out of your wallet, either physical or digital, and store it away. It’s there when you absolutely need it, but not when during your ordinary shopping. Use your debit card for online shopping.

Debt Reduction Strategies

The Consumer Financial Protection Bureau (CFPB) recommends two methods to eliminate debt. The first strategy is the high-interest rate method. This involves focusing on the debt with the highest interest rates, such as student loans or credit cards. Because this debt costs you the most due to high interest rates, you want to reduce it first. Ridding yourself of the highest costing debt saves money in the long-term.

The second strategy is the snowball method. By paying off your smallest debt first, you rid yourself of it as soon as possible. Make minimum payments on other debts until you’ve paid off the smallest debt. Once that is done, start in on paying off the next smallest debt. It’s a snowball effect because each debt is eliminated. Progress is faster than using the high interest rate method. However, this strategy could cost you more over time.

The CFPB’s debt reduction worksheet can help you determine which strategy best suits your needs.

Negotiate With Creditors

Contact creditors and see if you can negotiate a lower interest rate. If your credit card account has been in good standing, creditors may prove willing to reduce your rate, waive some fees or accept lower monthly minimum payments. However, if your payment history and overall account standing is less than stellar, such negotiations are unlikely to be fruitful.

Debt Consolidation

Another option for debt reduction involves debt consolidation. Your debts, including credit cards or other loans, are consolidated into one monthly payment. Debt consolidation does mean taking out a new loan that requires repayment. All of the debts you rolled into this new loan are now consolidated into a single monthly payment.

Debt consolidation doesn’t work for everyone. Such a loan isn’t going to help if you are spending more than you earn. Those who can benefit from debt consolidation loans should contact their bank or credit union to discuss the particulars.

Other Ways to Eliminate Debt

Do you have items you can sell on eBay or similar outlets? Can you hold a yard or garage sale? Earmark the funds received for paying down debt. Did you receive a tax refund? That, too, goes toward debt repayment. Chiseling away at your debt little by little can reap big rewards.

Eliminate Debt with Financial Discipline

Work on becoming more financially disciplined to eliminate debt and not take on additional expenses. This may involve consulting a credit counselor. Many nonprofit credit counselors work with clients to get them out of debt within two to four years. They also teach clients how to best manage their finances. Whether you do it yourself or seek professional advice, getting out of debt and learning the tools to stay out of it grants you enormous peace of mind.