You’re in debt and you don’t want to be, however, attempting to free yourself of debt might actually seem more frustrating than being in debt. Cleaning up debt is a lot of pressure. There are strategies you can use, though. We encourage you to read the following 11 strategies, and consult a financial advisor for additional help.
- Know Your Debts
Figure out what you owe. You might have more than one debt. You could have several used credit cards, student loans, a bank loan, and a personal loan you owe to your uncle. List each source of debt, how much debt is attached to each source, and the interest rates of each lender.
- Check Your Budget
Compare the amount of money you make from your job(s) to the amount of money you have to spend on bills, like rent or mortgage, and utilities, and expenses like groceries. Subtract spending from income. Use budgeting strategies to become familiar with your finances. That way you know how much money you have left over to pay off debts.
- Scrape Together Extra Funds
If you don’t have a lot of money left over after you’ve paid bills and expenses, search for more money. You can either increase your income by taking on side gigs like freelancing opportunities, or you can reduce your spending by being honest about where to cut back. Maybe save the car for weekends, swapping out gas for cheaper public transit costs. If you’re young and your family is supportive, live with parents to save on rent.
- Snowball Method
When you use the snowball method for debt management, you determine your smallest debt and focus on clearing that one first. Afterwards, you turn your focus onto the next smallest debt. Essentially, you’re creating a snowball effect on your debt management; you see steady progress.
- High-Interest/Avalanche Method
As opposed to the snowball method, the high-interest (or avalanche) method targets the debts with the highest interest rates, going highest to lowest. By tackling these debts first, you try to avoid interest rates piling up.
- Go Above Minimum
If you’ve checked your budget and you’re making way more than you have to spend, you can afford to pay more than the monthly minimum payments on your debt. Your monthly minimum may be $500, but you have an extra $800 each month. In that case, pay $700 and save what’s left for emergencies.
- Lower Your Minimum Payments
If you struggle to pay your minimum monthly payments, ask your loan lender(s) to lower them. It’ll take longer to pay off your debts, but your debts will seem less threatening overall if you’re only paying what you’re capable of paying.
Consolidating a debt is lumping all your debts into one and paying them off with a loan from a financial institution. Paying off a debt with a loan might sound silly, but consolidating is a legitimate strategy for managing debt. Instead of running around trying to pay several debts with varying interest rates, once you consolidate, you focus on a singular debt with a low interest rate.
- Don’t Take on More Debt
This tip might seem obvious, but it’s a good reminder. Don’t add to your current debt by using credit cards to pay bills and expenses, don’t take out loans, don’t borrow money from anyone. Focus on making an income, balancing your budget, and paying off your present debt.
- Don’t Rely on Credit Cards
You may have needed credit cards at one point in the past, but going forward, don’t lean on them every time you’re low on spending money. Learn about budgeting and only spend what you earn from sources of income. A budget will serve you far better in the long run than credit cards.
That doesn’t mean you need to cancel every credit card—in fact, making small payments on credit and immediately paying them off will positively contribute to your credit score, which is important for making major purchases.
- Emergency Savings
Once all the bills are paid, you have food on the table, and your monthly debt payments are covered then take whatever you’ve got left and put it into a savings account for emergencies. Instead of having to turn to credit in emergencies, you would be able to turn to your savings account.
Jacob Carmichael | Staff Writer