Credit Cards » Credit Card Guides » How to Get Out of Debt By Developing Healthier Money Habits
Advertiser Disclosure This website is an independent, advertising-supported comparison service. The product offers that appear on this site are from companies from which this website receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). This website does not include all card companies or all card offers available in the marketplace. This website may use other proprietary factors to impact card offer listings on the website such as consumer selection or the likelihood of the applicant’s credit approval. This allows us to maintain a full-time, editorial staff and work with finance experts you know and trust. The compensation we receive from advertisers does not influence the recommendations or advice our editorial team provides in our articles or otherwise impacts any of the editorial content on The Smart Investor. While we work hard to provide accurate and up to date information that we think you will find relevant, The Smart Investor does not and cannot guarantee that any information provided is complete and makes no representations or warranties in connection thereto, nor to the accuracy or applicability thereof. Learn more about how we review products and read our advertiser disclosure for how we make money. All products are presented without warranty.

How to Get Out of Debt By Developing Healthier Money Habits

Many people are getting out of debt all the time. However, no one is saying that you’re going to get things done in just a single day. Here's a couple of ways to improve spending habits and help you to get out of debt.
Author: Lorraine Smithills
Lorraine Smithills

Writer, Contributor

Experience

Lorraine is a freelance finance writer with years of experience in the banking sector and after a successful career in one of the largest retail and commercial financial services providers. She has a passion for helping people with less financial confidence to get control of their money through budgeting, saving, and responsible credit practices.
Interest Rates Last Update: April 15, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Lorraine Smithills
Lorraine Smithills

Writer, Contributor

Experience

Lorraine is a freelance finance writer with years of experience in the banking sector and after a successful career in one of the largest retail and commercial financial services providers. She has a passion for helping people with less financial confidence to get control of their money through budgeting, saving, and responsible credit practices.
Interest Rates Last Update: April 15, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

We earn a commission from our partner links on this page. It doesn't affect the integrity of our unbiased, independent editorial staff. Transparency is a core value for us, read our advertiser disclosure and how we make money.

Table Of Content

In this chart using data from Urban Institute, you can see that the age group 43 to 47 carries the highest average credit card debt. This age group has almost double the credit card debt of their under 32 year old counterparts or seniors aged 68+.

 

Many people are trying to get out of debt, save money, and spend less.

The truth is debt can occur for several different reasons, like overspending. When people try to get out of their debt, it seems like that’s when life gets in the way and something comes up. But what if you could still manage your debt? Many people are always getting out of debt, and they can do it quickly too.

No one says you’ll get things done in just a single day. Instead, you will need to develop many good habits related to your motivation, discipline, and follow-through.

What Are The Downsides of Unpaid Debt?

If you have unpaid debt you’re struggling to pay, you may wonder about what negative consequences can occur if you just forget about it. Unfortunately, this is a little like sticking your head in the sand. Just because you are not managing the debt, it doesn’t mean that it will go away.

Firstly, the missed payments will appear on your credit report, which will lower your credit score. If this is not bad enough, your creditors may also take steps to recover the debt. This can include measures such as selling the debt to a debt collection agency, which may harass you with phone calls or even doorstep visits.

Your creditors may also initiate a lawsuit, which could result in bank account levies or wage garnishment. So, it is crucial that you continue to manage any debt.

A majority of Americans have a plan to reduce their personal debts within specific timelines, based on a poll conducted by Northwestern Mutual

 

Better Money Habits To Follow If You Carry Debt

If you carry debt, it's important to develop and follow good money habits to help you manage your debt and achieve financial stability. Here are some tips:

Getting out of debt and building your credit takes time, but you can speed up the process if you’re willing to make changes. That means you can’t sign up for yet another credit card and can’t keep spending on credit to get things you want.

If you do these things, you’ll be able to cut down on your debt because you’ll have more money to put toward that debt.

If you want to get out of debt, you must know what you owe, who you owe it to, and any interest you’re paying. It can be difficult for those with debt to keep track of everything and take a complete financial tally.

One of the easiest ways to keep yourself from focusing on the amount of debt you have is to hide behind the numbers. Not adding things up means you never know where you stand, which is a huge problem. Make sure you add every type of debt, from loans and credit cards to your home mortgage.

It can be easy to find a way to solve the problem in a temporary sense by transferring balances or getting a personal loan, but understanding how you got to where you are is crucial.

Keeping track of what you spend and where you spend it will be the first part of the process. Get a book, an app, a piece of paper, or something you can use to account for everything. Some people find it challenging to track all their spending, so if that’s used, use a debit card and check your statement frequently to get an idea of what’s happening.

When you know where your money is going, you get a whole lot closer to being able to keep yourself on track.

Now it’s time to look at the most critical questions:

  • What am I spending on interest?
  • How much of my income goes to debt?

When you’ve got an answer to both of these, it’s time to look at your income and expenses to figure out what happens next.

What kind of things cause you to spend more money that you would like to stop? Talk with your partner or check out your bills to see where you’re spending a lot and then start looking for ways to cut those things down. Maybe you’re:

  • Eating out too frequently
  • Buying items you don’t even need
  • Getting involved in impulse shopping
  • Spending more than you should on sales

As you work through breaking the habits that you want to break you have to follow a simple two-step process.

  • Think about what type of habit it is you want to avoid.
  • Figure out how you’re going to cut out that habit and start a good habit.

Okay, so first you’re going to have to create a budget, but that budget is going to make a difference in tracking your spending and income. You’ll be able to figure out where you’re at now so you can keep moving forward in a positive way.

The important thing is to determine if you have a surplus or a deficit at the end of the month. That means, whether you have money left over or you’re spending more than you make.

  • Plan 50/30/20 ‍- It is not only one of the most popular strategies, but it is also one of the simplest because the instructions are literally in the name. After paying your bills, you should spend approximately 50% of your income on basic needs, 30% on “wants,” and 20% on savings.
  • Zero Sum Budget – This is a very detailed strategy. The term “zero-sum” refers to the fact that the amount of money you earn plus the amount you spend should be balanced and equal to zero at the end of the day. Every single dollar has a purpose in this plan.
  • The Envelope Method – The envelope system is a method of keeping track of how much money you have in each budget category for the month by keeping your cash in envelopes. By taking a quick look in your envelope at the end of the month, you can see how much money is left.

If you want to do anything, you will need a plan. You can’t just jump in and expect things to work, so look for ways to make it happen. You may have to cut into your savings a bit to start paying down some of the higher-interest stuff.

Also, you may have to use up some of your cash reserves to stop building up more interest. So, what’s the best thing you can do to pay off your debt? Make a plan. Here are two popular plans:

  • The debt avalanche – The debt avalanche is a debt repayment strategy in which debts are paid off in the order of their interest rate (from highest to lowest). It's worth noting that this has also been referred to as the “stacking method” and the “debt ladder.”
  • The debt snowball – The debt snowball is a debt repayment strategy in which debts are paid off in decreasing order of size (from smallest to largest). Just as a snowball begins small and grows into something larger, you begin with minor debts and work your way up.

Everyone has things that they want. It makes us normal. But unfortunately, too many people decide to buy the things they want even when they don’t have the money to do so.

People like to buy what they want when they want it, and even millionaires can have trouble with that. The best thing you can do is not buy something new unless you can afford to pay for it outright.

For those who decide to make all of their purchases on a credit card, this could add up to around thousands a year so that you can get some points or cash back. And most people only get a couple of hundred in those rewards.

If you don’t spend that much in a year, you may not get as much back, but you can see where the problems lie. Spending with cash is going to save you a small fortune.

This point is about ensuring you save money the right way. It’s not actually about making more money or getting a job.

What it means is making sure you put money into savings accounts, retirement accounts and more, before you start doing anything else with your money. In fact, you should follow this standard:

The best thing you can do to make sure you’re getting all of this taken care of is have someone that you’re accountable to. An accountability partner is someone that you can trust to talk about your financial goals and plans with and they should be someone who can keep you from spending money when you shouldn’t.

According to neuroscientists, it’s actually a hugely emotional issue to make many decisions.

People make the decisions they do base on things like love, envy, sadness, vanity, guilt or fear. You may make decisions based on a number of different feelings or emotions.

In general, when you make an emotional purchase or a decision to purchase something with your emotions it’s not something you actually need. You’ve decided you want it because of something else.

What an emotional decision means is that you made an impulse purchase. You’re not making a long-term or urgent decision about something that’s necessary for your family or your future. You may not even look at the price or at any of the research. Instead, you buy based on what you want in the moment.

For a lot of people, things that show up on their social media tend to be emotional purchases, like hair vitamins or waist slimmers. They’re things that someone buys because of the emotional impact that they make at the moment.

Setting savings goals, particularly if you intend to splurge on a major event – whether it's a vacation, retirement, or a wedding – is a simple yet effective measure because it gives you something to work toward.

Another method is to divide your objectives into short-term and long-term goals, which will allow you to track your progress on multiple levels. Short-term enterprises are typically goals that take one to three years to complete, such as purchasing a new vehicle. The latter refers to investments that last four years or more, such as a down payment on a house or saving for your children's education.

Setting smaller goals along the way, whether it's a new haircut or a birthday present, is a great motivator in the meantime. It not only reinforces money-saving habits, but it also allows you to reward yourself.

In this case, another way to save is to establish a retirement plan. Consider opening an IRA account if you don't already have one. 

FAQs

If you have credit cards, loans and other debt, one of the smartest ways to pay them off is to concentrate on paying the highest interest rate debt first. If you have a credit card with a 14.99% interest rate and a loan with a 3% rate, you’ll be paying far more in interest on your credit card, even if the outstanding balance is far lower.

While you continue to service your existing debt, aim to pay extra on your credit card. Once this is cleared, you will have far more funds to put towards your next highest interest debt account.

This is a tricky one. The chances are that your debt is attracting a high interest rate, so you may struggle to actually reduce the debt. However, if you don’t have any savings, if there is a financial emergency, you’re likely to put the purchase on your credit card and the whole cycle will start again.

So, for many people, the sensible approach is to try to do both. If you have $100 in your budget available each month, why not try to put $20 in savings and put the rest towards your debt.

Spending triggers are often tied to our emotions, so when we are feeling a certain way, we reach for our wallets and buy things. For example, if you’re feeling low, you may go out and buy something that makes you feel better. If you’re feeling jealous, you may spend money to “show” that person.

Your potential spending trigger may be different to other people, so it is important to identify what your particular spending trigger is, so you can spot when you are vulnerable and take action.

Generally speaking, bad spending habits are anything that encourages you to spend beyond your means. However, even if you are not particularly in debt, a bad spending habit could be compromising your future financial health.

These habits can vary from something small, such as buying an expensive coffee every day to larger impulse purchases. To determine if something is a bad spending habit, take a serious look at how much you actually spend.

Buying a fancy coffee every morning may not seem like much, but if you’re spending $3 every weekday, it adds up to $60 a month or a staggering $720 a year. So, if you’re struggling to budget and save for something, that seemingly innocent daily coffee is a bad habit.

Picture of Lorraine Smithills

Lorraine Smithills

Lorraine is a freelance finance writer with years of experience in the banking sector and after a successful career in one of the largest retail and commercial financial services providers. She has a passion for helping people with less financial confidence to get control of their money through budgeting, saving, and responsible credit practices.
Search
Best Cards Per CS

#1 In credit Cards

Our Newsletter

Sign up to our newsletter for secret credit card tips, insider advice, and exclusive deals straight to your inbox

Start saving smarter with

Our Credit Card Newsletter

Sign up for our newsletter and gain access to expert advice,
insider knowledge, and exclusive offers