17 Ways to Dig Yourself Out of a Financial Hole (and Build Toward Retirement)
At age 47 I was jobless, emotionally broken after an abusive marriage, and running through savings to keep a divorce attorney in my corner. Grieving my mother’s death and terrified that my disabled adult daughter and I would end up homeless, I couldn’t see any kind of future for myself.
Within five years I had earned a university degree on scholarship, found a new career as a personal finance writer, paid off divorce-related debt, and started rebuilding my cash reserves. In the next four years, I would open a Roth IRA and a SEP-IRA. I never was homeless, and I’ve never carried any debt since then.
It’s possible to dig yourself out of a financial hole if you’re willing to do the work. But you can’t stop there. It’s absolutely crucial to establish smart money habits in order to build your financial future — and to keep from winding up back in the hole.
Maybe you’ve stalled financially because you never learned how to manage money. Or maybe you’re mired in debt due to circumstances beyond your control, such as job loss or serious illness.
It doesn’t matter how you got there. What matters is that you get yourself out. Use these basic tactics to get a handle on your finances.
1. Start Right Now
The best time to have started getting your finances together was 20 years ago. The second-best time is right now.
2. Stop Digging
If you’re in debt, quit adding to it. Easier said than done, I know: My divorce attorney charged by the minute, for heaven’s sake, yet I couldn’t do without representation.
What could I do without? Almost everything else. I’d always been fairly thrifty, so it wasn’t as hard for me as it might be for others. However, I hadn’t done such a deep dive into frugality since my single-mom days, when I did all the laundry (including diapers) on a scrub-board in the sink. Not everyone can (or wants to) go to the lengths I did, such as living mostly on dry beans and homemade soups, using coupon/rebate deals to stretch my budget, buying almost no new clothing for years, recycling cans picked up on walks around the neighborhood, looking for any possible side gig (babysitting, participating in medical studies, shoveling snow) to add a few dollars to debt payoff.
If you find it tough sledding at first, welcome to the club of being human. Then think about your spending in this way: Adding more debt doesn’t just mean paying extra interest, but also something called “opportunity cost.” Every dollar you spend is a dollar that can’t work for you any other way.
While you’re still in the hole, this means dollars that can’t help you dig your way back out. And once you’re debt-free? It means dollars that can’t help you meet new financial goals: retirement savings, paying off your mortgage, a trip to your family reunion, or whatever will make your life better.
3. Adopt a Frugal Filter
To be clear: Your tolerance for frugal hacks is as unique as you are. I can’t force you to wash out Ziploc bags or to shovel snow for that matter. What I can do is urge you to adopt the main attitude that helped get me through those five years — something I call the Frugal Filter:
- Do I really need this whatever-it-is?
- Is there something I already have that might work?
- If I absolutely must get this item, is there a way to do so for free (borrowing it from a friend, using Freecycle)? And if not, how can I make it as affordable as possible? (Some examples: thrift store, yard sale, cashing in rewards points for gift cards to pay for it.)
4. Track Your Spending
Start by adding up all your income sources. Next, list all your obligations, including but not limited to mortgage, minimum credit card payments, utilities, insurance car note, and legally mandated payments (e.g. alimony or child support).
Subtract the second number from the first. If your monthly expenses are lower than your current income, that’s a good sign. But keep in mind that these are your anticipated expenses. You’ll also need money for irregular expenses such as home repair or a replacement vehicle, as well as for vacations, gift-giving, and other things that make our lives richer.
Tracking spending means you’ll know where you stand. The next thing to do is look for the best ways to use your money.
5. Create a Workable Budget
A lot of people swear by the 50/30/20 plan: Spend no more than half your after-tax income on needs, 30% on things you want, and 20% on savings and debt repayment.
Arrange your current spending into those categories. If you’re spending more than you should in any given department, find ways to bring costs down. For example, you might be able to refinance the mortgage and cut grocery costs (more on that in a minute) to get your “needs” spending under 50% of your take-home pay.
The categories can be flexible, though. For example, if debt repayment is more important to you right now than going out to eat, you could use some of your “wants” dollars toward paying down your credit cards.
Speaking of which, you also need to…
6. Make a Debt Payoff Plan
Earlier you added up your basic monthly expenses. But what’s the total amount owed? A lot of people honestly don’t know, because they never added it up. Full disclosure: I still don’t know how much my divorce cost, because I don’t want to know. (Hint: It was a lot.)
Don’t be like me. Add up your credit card balances while seated, because the total might make you feel a little faint (especially when you consider how much interest you’re paying). Let that Big Number inspire you to get real about paying it off.
Reprioritize your mortgage
First: If you’re making extra payments on your current mortgage, stop for now and put that money against your credit card balance. Talk with a mortgage specialist about the possibility of refinancing; your loan would be longer, but the money you’d save each month can be used against higher-interest debt.
Talk to your creditors
Next, call your credit card issuers and ask for lower interest rates. There’s no guarantee you’ll get them, but it can’t hurt to ask.
Try a debt snowball
Some people swear by the “debt snowball.” You pay minimum payments on all your credit cards except for the one with the lowest balance (but not necessarily the lowest interest rate); for that one, make the biggest payment you can. Once it’s paid off, you attack the card with the next-lowest balance, and so on.
The theory is that paying one card off quickly encourages you to keep going. Then again, you’re paying more interest on the other cards. That’s why some suggest it’s better to pay off the cards with the highest interest rates first.
Do what works best for you. If you need that encouragement, go with the debt snowball.
Another option is a 0% balance transfer credit card: moving all your debt onto a new card that offers 0% interest for 12 to 18 months. You’ll pay a balance transfer fee, typically about 3% of the total debt. However, if you pay the card in full during the introductory period, you won’t owe any interest.
This could save you a ton of money. (Wish I’d known about it back when I was paying off my divorce debt.) However, you shouldn’t get a 0% balance transfer card unless you have an ironclad plan to pay it off. Otherwise, you’ll wind up paying a ton of interest anyway, in addition to the transfer fee.
Another credit card debt tactic is a personal loan, that is if you can get a decent rate. You’d need an ironclad payoff plan for this option, too. And no matter how you pay off your debt, you absolutely need a plan to keep you from running up the credit cards all over again.
7. Stop Shopping
Our consumerist culture tells us that if we want something, then we should have it. This is why some people shop for fun, I guess, even if they don’t technically need anything.
“Need” is the operative word. Food, shelter, basic clothing, and utilities are needs. Everything else is a parade of wants.
There’s nothing wrong with wanting things. But there’s a whole lot that’s wrong with buying things we can’t actually afford. So if you shop for fun, stop doing that. Stop it right now. Un-bookmark your favorite shopping sites. Avoid brick-and-mortar stores.
Delete your stored credit cards, and remember that “one-click” shopping is of the devil.
Sound harsh? Reframe that thought right now: This is prudence, not punishment. It’s part of your plan to meet financial goals, including getting out of debt.
Since we get a nice dopamine rush whenever we find that Really Good Deal, our brain will try to trick you into “just looking.” Look for other ways to feel good, whether that’s The New York Times crossword puzzle or bingeing your favorite shows on an affordable streaming service.
8. Enlist the Help of a Friend
Find a friend who’s also trying to get out of the financial hole, and the two of you can support each other. (“I just saw the most amazing price on cheese straighteners and I really want to get one! Talk me out of it!”)
9. Focus on What You Have, Not What You Want
Here’s what worked for me: Thinking about what I did have, rather than obsessing about what I didn’t. Sounds corny, but hear me out. While living on about $1,000 a month (and still helping my daughter), I made an actual list of my advantages: decent health, a university scholarship, a library card, a part-time job, a 99-cent radio from the St. Vincent de Paul thrift shop, and the absolute conviction that I would one day be back in the black.
10. Be an Adult
The only person who can help me is me,” I said out loud, more than once, developing a stoic pride in — once more! — making do on nothing. I was dirt-poor but I was not dirt. I had a plan. (I also still had the scrub-board, and even used it sometimes.)
Sure, sometimes I still wanted stuff I couldn’t afford. Most of the time, my attitude of gratitude helped me power through. After all, I had things that were important to me and I knew if I just kept working at it, my debt would be gone. It wasn’t easy. But as my dad used to say, “That’s why they call it ‘work.’ If it were fun, they’d call it ‘fun.’”
Be an adult. Own your mistakes or your misfortunes. And do the work.
11. Rethink Family-Related Spending
Part of the reason I went broke was the financial support I gave to my daughter, whose disability benefit was minuscule. Ultimately she got married, found a job she could do from home, became self-sufficient, and moved to a different city. I kept giving, though: treating them to multiple meals out when I visited, sending numerous “just because” gift cards throughout the year, forgiving them a decent-sized loan (as a wedding gift).
Maybe you do this sort of thing, too. Keeping your grown kids on the family phone plan. Paying for their health insurance. Covering some (or all) of their rent. A financial planner told me some clients routinely buy extra stuff at Costco to bribe their children to drop by.
Perhaps your own kids don’t have to drop by because they’re already there: boomerang offspring who came back due to job issues, or who live with you so they can save up for their own homes. Or maybe your kids never launched in the first place — and why should they? Mom and Dad have a comfy home, a well-stocked fridge, and all the streaming platforms.
It’s natural to want to give our children the best. But here’s the thing: You cannot finance retirement. Your kids have many decades to build their financial lives. You, on the other hand, have a finite number of years to make the right money choices.
If you are in debt and/or have an underfunded retirement, do not set yourself on fire to keep someone else warm. Doing so could leave you out in the cold, financially speaking.
To be clear: I would have helped my daughter forever if necessary, but I’m very glad it wasn’t. Those dollars wound up going to retirement savings, my emergency fund (more on that below), and some cash reserves. I refuse to put my daughter in the position of having to support me if I run out of money in retirement. Don’t put that burden on your kids, either.
12. Keep Saving for Retirement
This may sound counterintuitive. Why save for retirement while I still have balances on 18% credit cards?
Because you can’t finance retirement, remember?
Retirement isn’t a question of simple-interest savings. It’s about growth, and growth takes time. The years you spend not contributing will be felt keenly when you retire — especially if you, like me, got something of a late start.
As noted, the 20% part of the 50/30/20 budget includes saving for the future. Ideally, you’ve already got some retirement savings from your current (or recent) job, and it will continue to grow as you figure things out. Resist the temptation to raid it early; the longer it stays there, the better your chances for its lasting throughout your retirement.
13. Give if It is Important to You
For some people, a 10% (or higher) contribution to their house of worship is absolute. If that’s you, know that it still may be possible to keep tithing at that level — but the money has to come from somewhere else in your budget. As noted above, you can find other ways to cut in order to keep the tithes coming.
If need be, talk to your religious leader about temporarily cutting back or even pausing your contribution. You could always promise to restart and to make up for the lost time.
Even when things were pretty dire for me I gave $20 a month to my church. Sure, that money could have gone toward my credit card debt. But giving to others got me out of my own head. That $240 a year reminded me that not only were my basics covered, I could even afford a little help for others who needed it. Never underestimate the satisfaction and peace this knowledge can bring.
14. Build an Emergency Fund
I kept a certain amount of liquid cash while paying off the divorce-related debt. It was tempting to throw every dime I had toward the balance. But I also wanted cash on hand so I could pay for utilities, car insurance, and food in case my job went away.
Some money experts suggest having a year’s worth of expenses banked. Others say that amount discourages people from even trying to save. Instead, they suggest one to three months’ worth as an initial goal, with additional contributions when possible.
I’m in the latter camp. Rather than pressuring yourself to come up with tens of thousands of dollars, aim for a single month’s worth. Go back to that household budget and look for places to cut. Canceling a subscription box you’ve stopped being thrilled by, skipping that automobile detailing you normally get every couple of months, dropping the gym membership that you haven’t been using anyway — these and other budget trims can help plump up the EF faster than you would have thought possible.
15. Get Serious About Groceries
Food is the budget category with the most flexibility. You probably can’t negotiate your car payment or your son’s college tuition, but you can cut down on meals outside the home and be choosier about shopping.
Accustomed to stores like Whole Foods and Sprouts? You might be surprised by the organic options available at regular grocers and even discount markets. Take an hour a week to browse different stores, and plan future shopping accordingly.
If you eat most of your meals away from home, gradually change your ways. Buy good-quality coffee and breakfast ingredients so you aren’t tempted to grab takeout every morning. Batch-cook and freeze breakfast sandwiches on weekends, or buy premade ones from a warehouse club (still more affordable than breakfast out).
Carrying your lunch just one day a week could likely save you $10 to $20, or $520 to $1,040 a year. Over time, work your way up to brown-bagging it at least three times a week, and put the thousands of dollars you save toward some other financial goal. In the four years it took to get my degree, I never once bought a single meal at school. An occasional snack or drink, maybe, but I carried all my meals. Again, I’m hardcore and looked at lunch as the fuel I needed to get through the day. Your mileage may vary. Just make sure it’s something you actually like to eat — and again, start slowly so that you don’t set yourself up to fail.
Dinners can be tough since most people arrive home as tired as they are hungry. A little weekend planning or some monthly batch cooking — especially with an Instant Pot — can change the way you eat, and will certainly change how much you spend.
Don’t know how to cook much, or at all? Do an online search for “easy affordable recipes with [your favorite ingredients].” Remember, you didn’t know how to use a smartphone until you made it your business to learn. The same is true of cooking.
16. Trim Larger, Recurring Expenses
It is worth it to shop around for something like car insurance.
Ask me how I know. When I arrived in Seattle, fresh out of my horrible marriage, I used the insurance agent a relative recommended. And wound up paying about $700 more a year than I needed to, for five years. Still shake my head sometimes about that $3,500 worth of opportunity cost, but I didn’t know what I didn’t know.
Look for better deals on Internet, phone, and cable service, too. This can save you some serious bucks, especially if you bundle services.
Note: Many people have ditched cable entirely in favor of streaming services. If you haven’t investigated these lately, you’ll be surprised by the options — and the potential savings.
17. Celebrate Your Progress
All of it. You won’t get out of the financial hole overnight, so it’s essential to note individual steps along the way. For some, a spreadsheet makes things easier.
Or use my daughter’s method, which is to list debts on a whiteboard. Each time you make a payment, you get to amend the total to reflect the change — and oh, my, how satisfying it is to literally wipe the debt off the board.
Once you’re back in the black, keep those savvy money moves in place. Spend less than you earn. Contribute to retirement regularly. Build an emergency fund to guard against the unexpected.