When you think of the American dream, what’s the first thing that comes to mind? Perhaps a comfortable home with a white picket fence, two kids, and a dog? This might be the traditional perfect life, yet millennials have a different idea in mind. They not only want a life with less “stuff”, but they know achieving the white picket lifestyle may not be a reality – especially if they are trying to climb their way out of debt.
According to a 2016 NerdWallet study, the average American household has credit card debt totaling $16,748. Average household debt – including credit cards, student loans, mortgages, auto loans, and more – hit a whopping average of $134,643. This marks an 11% rise over the past decade.
So, what does it take to break the debt cycle and live life within your means? For starters: good money habits. Let’s take a look at some money habits that might help you get out of debt.
Understanding exactly where your money is spent each month is critical for getting out of debt now and staying debt-free in the future. A budget can help you get there.
Holly Wolf, director of customer engagement with Solo Laboratories in Kutztown, Pennsylvania, says her budget goals help her focus on what’s important so she doesn’t spend on things that don’t matter.
“My husband and I have found ourselves in debt a couple of times, but we have made the necessary changes to end that. Each year we list our goals for the year. We know how much we’ll save for retirements, for general savings and how much we can spend on home improvements and vacations,” says Wolf.
Find ways to save
I am a firm believer that no matter how much money you have, you should always look for more ways to save. This might mean using a coupon to save 50 cents at the grocery store or putting loose change into a vacation jar to save for your trip to Europe. Simple money saving strategies will help you build wealth and hopefully stay out of debt.
Deacon Hayes, founder of Well Kept Wallet, is a firm believer in using coupons – with a caveat. “The key is to only use coupons for things that you actually need or were planning to buy already,” he says.
“My goal typically is to have at least ten dollars worth of coupons when shopping, which saves us at least $40 per month. This was very effective when we were paying off our debt and is still helpful even today.”
Switch to a cash-only lifestyle
The math behind living a cash-only lifestyle is simple. If you make the decision to make all your purchases with cash, there is no way for you to end up in debt.
“As my wife and I were working to become debt free, we noticed our biggest overspend was on food. To kill this problem and redirect more than $200 a month away from food and toward our debt, we switched from using our debit card for food purchases to using cash,” said Paul Moyer, founder of personal finance blog, Saving Freak. Moyer paid off $16,000 worth of debt in 14 months.
Eliminate the burden of student loan debt
It’s no secret that student loan debt is a growing problem in the United States. According to Student Loan Hero, Americans have more than $1.4 trillion in student loans. The average student from the class of 2016 graduated with $37,172 worth of student loan debt – a six percent increase over those graduating in 2015.
If you’ve got student loan debt, what can you do about it? A lot. There are several government programs that can help you reduce outstanding loan amounts. Plus, if you’re lucky, your employer might even have a program in place. No matter what your individual plan consists of, it’s important to make this a priority.
“The biggest factor in battling debt was ultimately paying more than the monthly minimum on my student loans,” said Brian Meiggs, founder of Millennial Money Guide. “At times, I would be making $1,000 or up to $4,000 lump sum payments when the minimum was only $300! Got a bonus check? The entire amount went towards paying down those pesky student loans.”
Make more money
Nearly everyone you talk to that has experienced debt will tell you one thing: You need to make drastic lifestyle changes in order to break this cycle. This may mean curbing your spending or finding a way to earn more money[a]. Many people do a combination of both.
“Making extra money completely change my life,” said Michelle Schroeder-Gardner, founder of Making Sense of Cents. “It allowed me to pay off my $40,000 student loan debt in just seven months. I was working around 100 hours a week between my day job and all of my side jobs, and while I was definitely tired, it was well worth it!”
Start Automating Your Savings
For many of us, finding additional money each month to put into savings can be difficult. According to a recent Bankrate.com report, nearly six out of every 10 Americans have less than $500[b] in savings. So what can be done to help change this growing problem? Try automating your savings by setting up a Chime bank account. Chime rounds up each purchase you make to the nearest dollar and places this amount in your savings account. Small savings like these make a big difference throughout the year.
While debt is certainly a burden, it’s not impossible to eliminate. It just takes some changes in the way you approach your life. In the end, breaking free of debt may help you realize exactly what makes you happy. A win-win.