9 Things To Do If You Have $7k Or More In Debt

Hello everyone.

It's me, your host Chelsea, founder and CEO of The Financial Diet.

And today we are getting back to a little bit of purely financial brass

tax.

Often we are more in sort of the commentary game.

We do a lot of podcasting.

We do a lot of fun stuff on here,

but every now and again we have to uh remind you guys

that we are first

and foremost a personal finance channel.

And so we are doing a little two-part series where we talk about kind

of two sides of the financial spectrum.

Uh today, this week we are starting with the debt side

and next week we are going to be doing the wealth side.

But let's just start with the debt

because although I'm at a very different place now than

when I started this channel about 10 years ago

and now I have a very very different relationship with money.

For those who do not know,

if you are not a TFD historian like some of you might be,

the entire reason I even started TFD was to hold myself accountable to my

own really,

really unhealthy relationship with money.

And that unhealthy relationship for me primarily manifested in credit card debt.

I quite famously got a credit card, multiple credit cards actually,

basically the second I turned 18, maxed them out, never even opened my bills,

let alone paid them.

All of my debt spiraled beyond my ability to comprehend.

I ended up in about $12,000 of ultra highinterest credit card debt.

All of it went to collections.

I was using check cashing services

because I owed so much money to my bank.

And yeah, I was in a pretty catastrophic place financially.

And I realize now looking back

that while I can accept

that a lot of

that was self-inflicted on my part

and I need to take accountability with myself for the not good decisions I

was making because I need to also use

that to motivate me to everyday make better decisions.

I also have to hold empathy for the person

that I was when I was in

that position because not only do we live in a society

that really encourages people to get trapped in bad financial situations,

like Lord only knows what I would have been doing

if the buy now pay later apps were available

when I was in all of this mess.

But also as someone who has anxiety

but at the time had extremely unmanaged anxiety,

I also understand that once you are in a bad financial position,

once you make a few mistakes or you feel behind the eightball,

it becomes incredibly difficult to move forward in any positive way.

For a lot of people, being in the quote unquote bad kind of debt,

things like highinterest credit card debt, debt accured for things that are not,

you know, productive or valuable investments in your life.

Once they get into a bad position with debt,

they usually go one of two ways.

They do what I did,

which has become ultra avoidant about anything to do with money,

like my credit score was absolutely catastrophic for years,

and I just couldn't even look at it

because I knew it was going to be

so bad.

Or they get even further into that mentality of like, well,

I'm already screwed either way,

so I might as well give up the hope of ever being better

and just,

you know, freestyle it every single day until I guess I'm on the street.

like people tend to go into catastrophizing

and extreme binary thinking

when it comes to debt.

But the reality is speaking

as someone who got out of credit card debt mostly by paying off my

debt collectors and settling with them for uh a percentage of what I actually

owed.

Fun fact, a lot of uh debt collection agencies will settle with you for

less than you technically owe

because they just want to get some money out of you.

It is absolutely possible to get out of debt.

It is also absolutely possible to become a lot more unemotional about it,

which I know is very hard, trust me.

But it's also crucial

if you're going to make positive steps

and have a healthy relationship with debt.

Because one of the things I don't like about a lot of personal finance

creators,

media figures, journalists, etc.,

is there tends to be a lot of binary thinking around the concept of

debt.

Like the entire concept of debt uh is a negative one

and it should be avoided at all costs.

I disagree.

I am someone who made a mess of her life financially with bad debt,

but I also have a mortgage right now.

I've also invested in my career.

I think there are many cases where debt can be a good thing.

And if you have, you know,

built the right tools and mentality around managing it.

There are many ways in

which it can actually help not just your life

but also your wealth building.

But first and foremost,

you have to manage your debt

and get out of any debt that's really holding you back.

I also, before I get into all of the nitty-gritty of this video,

want to give a quick shout out to Monarch.

They are one of our primary partners here at the Financial Diet.

They are also the budgeting app that I personally use.

Um, something I talk about a lot, I've talked about here,

but I also talk about in the first TFD book, etc.,

uh is that for me the first step

as an avoidant person to getting out of debt

and changing my relationship with money was a good budgeting app.

At the time it was Mint.

I absolutely fell in love with Mint.

Started using it like kind of obsessively in the early days of my financial

rehabilitation.

Um and used it up until it went away last year.

And um when I was looking for a Mint replacement,

I found Monarch and absolutely loved it.

And I actually started using it before we even worked with them.

I we actually approached them because I love the app so much.

Now most of us on the team use it.

My husband use it.

Like we all use it.

But um genuinely if you are someone who is in debt

or who is trying to build a better relationship with money

or get to a better financial place,

I cannot stress enough how important a good budgeting app is.

And I personally absolutely love Monarch.

And we have uh at the link in our description uh a free trial

and exclusive discount for you to try it out for yourself

if you want to.

So, give it a give it a quick look, guys.

I highly recommend it.

But anyway, so let's talk about what you need to do

if you have at least $7,000 of debt.

And I'm saying $7,000

because that is actually the average amount of credit card debt in America.

For some people, it might be more or might be less,

but ultimately the actual number of the amount

that you owe when you're in debt is less important than your overall financial

relationship to that debt.

Are you able to make consistent payments um versus are you only paying the

minimum?

and therefore the number is spiraling through interest.

Um, is it drastically impacting your ability to save, invest, etc.

Like all debt is different, but generally speaking,

there are some key things that everyone needs to do when in debt.

And actually, fun fact about the minimum payment thing.

Um, there was recently a viral TikTok uh

that we were discussing in the company Slack where basically a woman did not

know that you were supposed to pay more than the minimum amount on a

credit card bill.

So, in the video,

she actually says she just found out how credit cards work

and could have been paying more than the minimum the entire time,

but only just realized after noticing charges on her card for interest

that the minimum was not the total amount owed.

And she even says

that she's not a big spender

and that she thought she was pretty good with money

and had enough of it the whole time.

So, she should have been paying off the bills in full

and just didn't realize.

Now, at TFD, we couldn't agree if this was rage bait or not.

I partially think it was because it just seems so hard to imagine,

but I also forget sometimes

that like I'm so steeped in talking about money

that I don't always realize how much a lot of people just don't even

have really basic financial education.

But it is important to understand

if we're going to talk about debt

that what really changes debt is the interest.

For example, you can literally never acrue interest on credit cards

if you pay them off in full at the end of every month

when they're due before the interest kicks in.

That is how I use credit cards

and how I've used them for a decade plus now.

But on the flip side,

if you have already a high interest rate to begin with

and you're only making the minimum payments,

you can go from having, let's say,

$1,000 credit card bill to all the way up to $10,000 of credit card

debt.

And to be clear,

that is far from the only credit card debt story

that is circulating everywhere on social media right now.

Here are a few examples.

And again, I want to say talking openly about credit card debt,

I do think is a very good thing.

when I was at the worst place of my debt,

like I was physically sick almost every day because of how stressful it was.

Like I basically stopped using my phone

because every other call

and message was from a debt collector.

But I also think that talking about it can't just stop with like, "Oh,

I didn't know you could make more than the minimum payment."

Like, we need to be very strategic

because overall the national average credit card debt among card holders with unpaid balances

in Q3 2025 was $7,886,

up 2.8% 8% from 7,673 in Q1 of 2024.

And that includes debt from bank cards

and retail credit cards. 11 states spread throughout the nation also have average balances

of at least $9,000.

Connecticut leads at $9,778, which is just ahead of New Jersey and Maryland.

And we cannot ignore how much worse these numbers have become with buy now

pay later apps,

which thank goodness those were not around

when I was getting myself into all kinds of debt cuz it would have

been way worse.

But even in their short existence, according to a report from the CFPB, quote,

"Buy now pay later borrowers have $871 more in open credit card balances

and 5,734 more in student loans

and 453 more in personal loans

and $292 more in retail loans compared to their non-by now pay later borrower

counterparts.

Lastly, I want to say this.

All of these nine to-dos

that we are going to talk about apply to any kind of debt.

Although again, we have to be a lot more vigilant about debt

that has very high interest rates.

Often things like car payments, credit cards, etc.

And by the way, I mean, even mortgages are getting out of control now.

So that can also be an issue.

And even some student loans can get way out of control

when it comes to interest.

And again, you may have more or less than $7,000.

We are just strictly speaking in averages with that number.

But generally speaking, no matter what kind of debt you have

or how much you have of it,

here are nine things you need to start doing now.

Number one is you need to face the music.

List out all of your current debts.

That means going through all of your accounts

and making a comprehensive list of all of your debts,

including how much you owe, the interest rate, and the minimum payment.

And for now, you add up how much you are currently paying toward your

debts if you only make the minimum payment.

And do not forget to include any buy now/pay later debts owed.

I understand, especially for people who are not in a position to be paying

anything but the minimum,

that it can feel pointless to do this exercise.

Again, I literally was

that person and that is how my debt ended up in collections was through

avoidance.

But I promise you

that even if you are not able to change your relationship to

that debt,

you're not able to pay any more of it,

you have to understand all of your debts.

You have to understand their interest levels.

You have to understand your payment plan.

And you have to be able to look at it very very regularly.

I would recommend at least at the beginning on a daily

or every other day basis

so you can really check

and make sure you're not missing something especially

if you've been avoidant with it historically.

Number two is you need to do the math on paying the minimum.

And yes, this will hurt.

So when you only make the minimum payment on high interest debt,

you are not just prolonging your debt payoff period,

you are also vastly increasing what you're paying in total.

So, there are tons of online calculators that can help you figure this out,

and we will link one in the description below.

But let's just say that you owe $7,000 on one credit card balance,

and your APR is just about the average of 21%.

And let's say your minimum payment is calculated

as the interest owed plus 1% of your balance,

which is on the lower end.

And so, that's a $192 minimum monthly payment.

Now, if that's all you pay, it will take you 313 months,

aka over 26 years, to pay off your balance,

and you will end up paying over $11,600 in interest,

which is more than doubling your actual balance.

Now, let's say you decided to pay double the minimum payment instead

or pay $384 a month. you will lower

that repayment period to 23 months.

And you'll only pay $1,54 in interest,

which is still arguably way too much to pay in interest,

but a much easier pill to swallow than the amount you'd end up paying

just by making the minimum payment.

Now, I want to be clear before anyone yells at me in the comments

that I am not saying here

that you do these calculations

and then the next day you are able to double your payment.

Obviously, that may not be possible,

but you also have to frequently remind yourself of what you are changing by

paying a little bit more.

and really do everything you can to make those numbers concrete

because we are very very good,

our brains are very good at diluting ourselves when it comes to longer term,

bigger numbers.

We have a hard time visualizing it

and a hard time understanding the difference

that compound interest makes.

This is also why investing is such an important thing

and is so important to do over the long term

because just like compound interest can work against us,

it can also very much work to our benefit

when it comes to interest earned on your assets.

But in this case, even if you can't change anything right now,

you need to understand exactly what you are charging yourself by paying the minimum.

Number three is assess your emergency savings.

So you need to ask yourself, do you currently have an emergency fund,

i.e. enough cash to cover 3 to 6 months of expenses

if something bad should happen?

And if not, do you have at least one month of expenses saved?

And we always say to make sure you have at least a one-month emergency

fund saved before turbocharging your debt payoff plans

because the last thing you need to be is thrown off of course by

an emergency or unplanned necessary expense.

Emergency funds are not more or less important than debt payoff per se.

Like they're both very very crucial in any financial strategy,

but you really can't feel comfortable doing anything more aggressive than the minimum with

debt if you have no emergency savings

because you are running such a high risk of getting right back into debt.

Number four is decide on the repayment method if you have multiple debt sources.

So there are two main types, the debt snowball and the avalanche.

A debt snowball involves paying off your balances from smallest to largest.

You pay the minimum on all balances except for the smallest one,

which you put extra toward until it has been paid off in full

and then you move on to the next smallest balance

and so on.

The debt avalanche means

that you pay off debts in order from highest interest rate to lowest.

It is often cited

as the right option

because it generally means paying less in interest overall

while debt snowball can sometimes be more motivating since you see an entire debt's

amount wiped out sooner.

But the right answer for you is just whichever option works better to keep

you motivated toward the goal of becoming debtree

or at least highinterest debtree.

Number five is explore consolidation options.

And again, I say this

as someone who herself ended up using consolidation options

and again ended up settling for less than I actually owed.

So sometimes consolidating your debts into a single monthly payment can make them feel

more manageable or even lower your interest rate

and the amount that you end up paying back over time.

Some of the popular ways to do this are debt consolidation loans

or balance transfer credit cards.

And we'll link you to an explainer on that from the CFPB.

But remember, consolidation doesn't come without its own risks.

For instance, balance transfer cards typically work by having a 0% APR period for

a set amount of time,

sometimes up to 18 months,

meaning that you wouldn't acrue interest during

that time after you transfer any balances onto the card.

However, there's often a high APR that sets in after that incentive period.

You want to make sure

that you can pay off any balances during

that 0% APR period,

or else these cards will just be another way to keep you on the

debt hamster wheel.

Similarly, debt consolidation loans may only have a low interest rate for a set

period of time.

So, make sure you always read the fine print

and shop around before committing to any of these choices.

And also, as with essentially any credit product,

you will have more and better options the higher your credit score is.

Next, number six is to make your ASIS budget.

And what I mean by

that is if you're going to start throwing more money at debt,

it has to come from somewhere.

So, in the immediate,

that's probably going to be from cutting back on your current spending.

So, if you have no changes to your income,

what can you currently cut back on to free up more space for debt

payoff?

If you have nothing else you can realistically cut,

the only real answer is going to be to increase your income

or otherwise to look at non-essential spending to find places to cut.

Number seven is to make your increased income budget.

So, if you don't currently have enough wiggle room in your budget to dedicate

more toward debt payoff,

you have to start thinking about realistic ways to increase your income.

That could be extra shifts or overtime.

That could be wrangling for a promotion or raise.

That could be looking for a different employer.

That could be taking on a second job, doing freelancer gig work, etc.

You need to make an adjusted budget based on how much more you can

add to your income.

Even if you can't implement it yet, you should have it ready to go.

I want to say here, and this is everyone is going to be different,

and I don't want to get into that slippery slope of being like the,

you know, scolding personal finance person who thinks we should all be working 12

jobs to pay off our debt.

But I would be dishonest

if I did not say

that I was able to pay off my debt by working multiple jobs.

When I started my debt payoff journey,

I was working full-time as an Opair.

I was also going to school.

Um, but I also started writing freelance.

I um was writing for 25 bucks an article at some places,

200 bucks an article at others.

It was all over the place.

I also was tutoring English and French via Skype at the time,

and I had one inerson client.

So, I was tutoring, I was writing, I was a nanny,

and I got my first book deal in 2011.

It was only a $22,000 advance broken up into several payments.

But it did also

then allow me to finally pay off the last large chunk of my debt.

And trust me, that was just the beginning of my journey.

Like, after that, I had to rehab my credit score

and build up my savings

and do all of these other things.

But it was how I was first able to get out of the absolute

worst case scenario uh with my debt collectors.

Again, your mileage may vary,

but my ability to pay off debt in those early days did crucially come

from having several different streams of income.

And trust me, I did not like having to work so much.

Like, especially tutoring language.

Like, that was just never my thing.

I never really loved doing it,

but it was the most hourly

that I could earn

and it was really flexible with my schedule.

So, I had like three clients

that I would work with. um find something

that works for you,

but I would not have been able to make the progress

that I made without having several streams of income.

Number eight is you need to get to the root cause of your debt.

So once you have started taking the more immediate practical step toward paying off

your debt,

it is time to take on the emotional side of it.

What got you into it in the first place?

For me, quite obviously, it was insecurity.

It was anxiety and me thinking that spending money on things, buying things,

being able to participate in things with other people would make me more liked

or make me feel better about myself

or make me feel like I had,

I don't know, quote unquote made it,

which is insane cuz like obviously you're not making it if you're, you know,

putting yourself into horrendous credit card debt in order to to do it.

But we live in a culture

that very much conflates our ability to buy things with personal value

or selfworth.

So again, I try to have both accountability for the objectively unhealthy decisions I

was making,

but also empathy for the naive, young, very unhealed person who was making them.

And by addressing the things that were motivating me at that time,

it's much easier for me now to avoid getting sucked into the same traps.

Lastly, number nine is you need to make your one-day budget.

So, a lot of people plan out some kind of reward

or celebration for when they're trying to stay motivated toward a big financial goal.

But try to think outside the box of just a one-time reward.

Imagine what your budget could be once you no longer have debt to pay

off.

And whatever you're currently spending to pay off short-term debt,

remember that one day

that can go toward literally anything else. contributing more to important long-term goals like

your retirement,

but also just having more to travel

or to spend on personal hobbies

or do whatever you want.

Visualization, especially when you are in the absolute trenches of debt, is so key.

You need to not just picture what your life will be like

and the person you will be

and how you'll feel about yourself,

but also literally what you'll be able to do with the money

that is no longer going to pay off debt.

You have to visualize this.

I know that money manifesting is to some extent woowoo nonsense,

but I also think there's a lot of truth to it in the sense

that I think we can only achieve what we can see for ourselves,

what we allow ourselves permission to think is possible,

what we allow ourselves to dream.

And for me, and anyone who's been in credit card debt,

anyone who's been in serious bad debt understands this,

when you are in that place,

it can feel not only

so so stressful on a day-to-day basis

that it's difficult to even think about anything else.

Like it's it's literally difficult to even think about like your job

or running errands or doing anything,

having fun with friends, having relationships, etc.

But beyond that, it's really really hard to picture a time in your life

where a you won't be in debt

and b you will have better habits around these things.

So you must go out of your way to not just picture that person,

but literally make that budget.

Think about what you will do with

that money when it is no longer going to debt pay off.

And like I said,

if you are starting this journey

and you're thinking about getting a good budgeting app to help you along the

way,

I cannot recommend enough that you check out Monarch.

I love it.

I've been using it basically since Mint went away.

And I check it.

I literally checked it twice this morning.

I love Monarch.

That's a real endorsement, baby.

I'll see you next week.

Bye.