Americans continue to stack up debt, although financial consumers have done a better job of curbing personal debt during the COVID-19 pandemic.

According to the New York’s Federal Reserve, total household U.S. household debt rose 0.6%, by $87 billion in the third quarter of 2020, after falling by $34 billion in the second quarter. Now, total U.S. household stands at just over $14 trillion [1].

The rate of high household debt is rising, too.

The Federal Reserve reports that financial consumers in 13 states now owe more than they earn on an annual basis, while the average household pays a dollar out of every $5 in income just to make monthly payments to debt.

If you’re in that unfortunate demographic – we’ll call it the $50,000-and-over debtor’s club – it’s high time to take action and start pounding away on massive household debt loads.

Make no mistake, some people are already doing so – with great success.

“I took a $17,000 personal loan to buy a used minivan for my growing family,” said Jeff Neal, founder of the Critter Depot in Lancaster, Pa. “The loan  had a high interest rate, so I needed to pay it off quickly.”

Thinking creatively, and already experienced in sales, Neal launched a website selling live crickets to reptile owners. 

“I was able to market the crickets to reptile owners through online reptile forums, and I was able to pull in about $700 in extra cash per month, which helped me pay off the loan in 13 months.”

Getting Back to Square

Just like Neal, if you’re in deep on personal debt – even as high as $50,000 or more – there are several realistic action steps you can take to cut that debt down to size, and even eliminate it.

“Paying off $50,000 in household debt over a period of two to three years can be realistic,” said Alex Miller, founder of the Upgraded Points financial web site. “That assumes you are diligent in paying off the debt as aggressive as possible. Assuming you take a large percentage of your salary to pay down the debt, paying everything off within three years is possible.”

How can financially suffering Americans start whacking away at high personal debt? The key is, as Miller notes, diligence – with a healthy dose of creativity thrown into the mix. Try these strategies to get the job done.

Bundle all household debt into one single loan.

The first thing you need to do is consolidate the debt into one single loan, like a personal loan, Miller advised.

“That way you’ll have lower interest payments and you can pay towards one goal each month rather than separate debts,” he said.

Focus on the larger debt.

This might seem contradictory given the natural priority to pay down smaller debt first, but the real focus should be on large personal debt. 

“Many people want to repay the smallest loans first this way they can start to feel accomplished, but in reality, the bigger debts usually have the highest cost since there’s large amounts of interest accumulating,” Miller noted. “You want to pay the largest debts first and those with the highest interest rate.”

Think beyond minimal payments.

The “minimal payment mindset” can be a real drawback when facing down high personal debt loads.

“The biggest mistake that people make when faced with large amounts of debt is thinking that it’s enough to make the minimum repayments,” said Anna Barker, founder of the Logical Dollar personal finance web site. “This can significantly extend the life of your debt and, in turn, will result in thousands of dollars of extra interest being added on to what you owe.”

Instead, focus all your finances towards paying off this debt to get rid of it as quickly as possible. “This may mean a few years of living on a fairly tight budget, which isn’t the most exciting prospect for anyone,” Barker said. “However, given the benefits of being debt-free in a much shorter period of time, not to mention how much less overall you’ll have to pay towards this debt, it’s completely worth it.”

Build a budget that works

A big step in paying down $50,000 in household debt is to develop a bullet-proof household budget.

“Divide that budget into three sections – Income, Needs Expenses and Wants Expenses,” said Rick Orford, founder of the money management website, The Financially Independent Millennial.

— Income is the expected income you’ll receive, after taxes. “It’s what you’ll get on your paycheck, after deductions,” Orford said.

— Needs expenses are those things that your household needs. “For example, that list could include mortgage or rent payments, insurances, and food, but not restaurants,” he added.

— Wants Expenses are those things that you want but don’t necessarily need. “For example, that includes clothes shopping, restaurants, and cable TV, among other goods and services.”

“By shaving just $1,500 a month from your budget, you could have your $50,000 household debt paid off in as little as three years,” Orford said.

Moonlight for money

If you have the time and energy, taking on a second job can bring in the extra income you need to cut down monumental debt.

“When paying down debt, you have to increase your income,” said Devon Horace, founder of Portland, Ore.-based Horace Consulting, LLC (Horace also recently paid down $47,000 in personal debt within 10 months.)  “Yes, you can consolidate your loans into a smaller interest rate so you’re not paying more over time due to interest, but people tend to forget how important making more money is to pay down your debt.”

Horace doesn’t mean taking on a full-time job – part time work will do just fine.

“Think temporary side hustles like ride-share services, food delivery, or part time work at a grocery store,” he said. “There are many ways you can pick up a side gig today to increase ones income in order to pay down debt quickly.”

[1] https://www.newyorkfed.org/microeconomics/hhdc.html