Yahoo Finance How To Eliminate $100,000 of Debt
If there’s one thing many of us know all too well in the U.S., it’s debt. Collectively, we just keep amassing more and more of it. According to Debt.org, American household debt hit a record-breaking $16.9 trillion at the end of 2022, up $2.75 trillion since 2019, according to the Federal Reserve.
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Once numbers get so high, they can start to blur into a kind of existential ball of confusion mixed with anguish. This can happen even when you’re facing down your own debt, especially if it’s near or over the $100,000 mark.
When carrying massive debt, how can you wipe it out? Here, experts share their best tips on how to eliminate $100,000 of debt.
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Recognize You Have a Big Problem on Your Hands
Experts across fields generally say that the first way to address a problem is to recognize you have one in the first place. The problem of debt is no exception.
“Acknowledge there’s a problem that needs action — now,” said Sean Fox, president of debt solutions at Achieve. “No matter what your income, $100,000 in debt is a very significant amount. The first step to take is to acknowledge it is a problem and that you need to take action now; it’s not going to disappear on its own.”
Make a Plan
So you want to get out of debt. Awesome! But how will you actually do it, step by step? You need to put an actionable plan in motion.
“Saying you want to get out of debt, similar to saying you want to lose weight, is great, but the best intentions don’t constitute action plans,” Fox said. “You need to do your research and figure out a realistic plan that you can commit to.”
List Out All Your Debts
Tackling your debt can be a challenging mission throughout, but starting may be the hardest part.
“Start by listing all your debts, including interest rates and monthly payments,” said Taylor Kovar, CFP, founder and CEO at Kovar Wealth Management. “This helps you see the big picture and prioritize which debts to tackle first, typically those with higher interest rates.”
Create a Hard Budget
When embarking on eliminating $100,000 of debt, or any cumbersome amount, it’s so important to be accurately and frequently tracking your income and expenses.
“This can show you where you can cut back and put more money towards paying off debt,” Kovar said. “According to a survey by the National Foundation for Credit Counseling, people who follow a budget are more likely to be able to pay off debt and save for emergencies.”
Focus On Paying Off Debts With the Highest Interest Rates First
Yes, you need to pay down all your debt, but you should set out to first tackle the debts that are accruing the most interest (and thus setting you back the furthest) while making minimum payments on others.
“This method can save you money on interest over time,” Kovar said.
Don’t Skimp On an Emergency Fund
Once you start to get really passionate about paying off debt, it can be easy to forget that it’s critical to have a money buffer for unplanned expenses. Do as much as you can here, too.
“Aim to save a small emergency fund, even if it’s just $1,000, to cover unexpected expenses,” Kovar said. “This prevents you from adding to your debt when unforeseen costs arise.”
Get a Personal Loan To Consolidate Debt
“If your debt (or much of it) is high-interest credit card debt, a personal loan may offer a rate lower than on your credit cards,” Fox said. “The idea is to consolidate your other debts into one with a lower rate, and pay that one loan off faster.
Note that interest rates can vary widely and are typically dependent on your credit profile and scores (i.e., the lower the score, the better the rate).
“The limit for most personal loans is usually $50,000, so again, depending on your type of debt and how you’ll tackle it, a personal loan might help,” Fox said.
Consider Debt Resolution (Settlement)
If you’re carrying a boatload of debt, debt resolution could be a savvy move.
“This can be a smart option for someone with significant unsecured debt, especially if having a hard time making minimum payments and if dealing with the impacts of a financial hardship (such as job loss, medical expense or divorce),” Fox said. “Programs are regulated by the Federal Trade Commission.”
If It Gets Too Bad, Think About Filing for Bankruptcy
Absolutely a last resort, given that it damages your credit rating for years after, bankruptcy is an option for those who simply can’t manage to pay off their $100,000 burden — and likely never will be and are trapped in an eternal vicious cycle of living paycheck to paycheck.
“Chapter 7 bankruptcy does eliminate most consumer debt — although this type of filing is hard to obtain, and can be expensive,” Fox said. “Chapter 13 bankruptcy requires a debt repayment plan. This filing is available to consumers whom their state of residence determines, through its means test, to have sufficient income to repay some determined amount of the debt.”
Fox highlighted two additional notes here for those thinking about filing for bankruptcy:
“Monthly payment amounts in a Chapter 13 filing are generally comparable to payments in debt resolution programs; bankruptcy filings are public, so anyone who wants to access the information can. Non-exempt assets (which could include a house or car) can be liquidated as part of a bankruptcy.”
Get a Professional Debt Expert To Help You Negotiate
Staring down $100,000 of debt can be overwhelming and extremely challenging, even if you know exactly what to do. Professional support, such as that offered by credit counseling firms, can be helpful not only in keeping you calm but also by advocating for you and crafting a customized plan of attack.
“A credit counseling service can help you set up a debt management plan,” Kovar said. “They can negotiate with creditors on your behalf to lower interest rates and consolidate payments into one monthly bill.”
When Paying $100K of Debt Down, Give It Time and Give Yourself Compassion
If you put in the work, you can possibly eliminate $100,000 of debt. But don’t expect new debt-busting habits to feel comfortable right away.
“It’s important to accept that it will likely take time and require some belt-tightening and other changes in your financial behaviors,” Fox said.
Giving yourself care and support is important, too. You’re doing something pretty major and you deserve to feel good about it.
“Give yourself some compassion,” said Nathan Astle, financial client therapist at Beyond Finance. “Our financial lives are incredibly complicated. Some of it is a reflection of our financial habits, but there are larger systemic factors that we have relatively little control over. Getting into a shame spiral is not going to be helpful for your motivation. We don’t kick ourselves upwards.”
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