Debt is a problem that millions of individuals face. Many people throughout America owe more money than they can afford to pay back, which can cause major financial stress.
If you find yourself in debt, you may worry that you won’t be able to repair your finances and get your budget back on track. However, there are many different strategies you can take advantage of to help repair your finances.
Some of these steps you can take are outlined below. With a little preparation and a clear understanding of your financial goals, you can pay off your debt and improve your financial situation.
4 Things You Can Do Today to Help You Get Out of Debt
Paying off debt is a daunting task. Before you get started, there are some easy actions you can take to help you get a better understanding of what you owe and how you can reorganize your finances.
1. Have a thorough understanding of your debt.
One of the biggest problems people in debt face is not knowing exactly what they owe. If you’re deeply in debt, it may seem easier to ignore your problem than face it directly. However, this will only cause you problems in the future.
If you’re serious about regaining control of your finances, you need to make sure you know the amounts you owe for all of your debts. This means you’ll need to look the following types of debt you might have:
- Credit cards
- Student loans
- Medical bills
- Utility bills
Once you understand what types of debt you have and the amount you owe, you can get a better sense of how much you’ll need to pay off your bills.
2. Set realistic financial goals.
Once you take a look at your current financial situation, it’s time to think about where you want to be financially. Feel free to dream big at this point. Some people might dream of retiring at a certain age, while other people’s goals are related to buying a house or car.
No matter what it is you’d like to do with your money, it’s important that you name it and have a clear understanding of the amount of money you’ll need to reach that goal. The clearer your vision is, the easier it’ll be to stay motivated to pay off your debt.
3. Decide how you’ll pay off your debt.
Your debt payoff strategy is likely to be as unique as your financial goals are. There’s no one perfect way to get out of debt, and the method combination you’ll need to use depends largely on the:
- Type of debt you have.
- Amount of debt you have.
- Amount of time you have to pay off your debt.
When you’re determining how you want to pay off your debt, remember that there are many different strategies you can take advantage of. For some, debt consolidation might be the right option. In more extreme scenarios, you may need to declare bankruptcy. To help you make the best decision for you, be sure to speak to a financial counselor or another trusted resource. Lawyers or accountants might also be helpful professionals who can help you make an informed choice regarding your finances.
4. Keep track of your progress and remain with your strategy and goals.
The most challenging part about having a new budget and debt repayment plan is staying consistent with it. In a similar fashion, keeping track of your progress with your debt repayment plan can also get tricky when you become busy.
If you want to completely remove your debt, it is vital to remain consistent to making your predetermined payments and keep track of them. Keeping track of them can show you how you can adjust your strategy to your current circumstances.
Debt Consolidation Resources
- National Foundation for Credit Counseling
- Federal Counseling Association of America
- Student debt consolidation information
How to Create an Effective Debt Payoff Strategy
Once you’ve done the preliminary work to understand your debt, you can create a strategy to pay off what you owe. Different tactics you can use are outlined below.
Reduce Your Credit Card Usage
Paying high sums of credit card debt while still using credit cards is not an effective way to pay off debt.
In order to pay off what you owe, you must reduce your credit card usage until you have been able to pay off at least most of the credit card debt on all your accounts. It can seem challenging to pay off debt that has been accruing over time. However, the only way to overcome this is to stop spending your money and creating new debt. During this time, you’ll need to limit your unnecessary purchases and put all the extra money you have toward paying off your debt instead.
Utilize Low-Interest Offers to Pay off High-Interest Debt
Another way to reduce the total debt you have is to use a new credit card with a low introductory debt transfer rate to pay off a high interest credit card. Usually, you’ll do this with a balance transfer credit card that charges no interest during the first year or so that you have it.
If you can pay off your debt within the year, this is an effective strategy. If you can’t, it’s best to look for another debt reduction solution. That’s because you’ll start accruing interest on your balance at the end of that introductory period, which means that after that point, this strategy won’t save you money.
Best Low-Interest Credit Cards
- Wells Fargo Platinum card
- Capital One SavorOne Cash Rewards Credit Card
- BankAmericard credit card
- American Express Cash Magnet Card
- Citi Simplicity Card
- Discover it Balance Transfer
- Chase Freedom Unlimited
- Discover it Student Chrome
Eliminate the Most Expensive Debt First
Many Americans don’t pay attention to the interest rates they’re being charged for each of the debts they have. This causes major problems the longer it takes for you to pay off your debt.
When coming up with a debt payment strategy, you might want to consider paying off the debt with the highest interest rate first. This is especially true if you have credit card debt that’s spread across several different cards.
Go Beyond Your Minimum Monthly Payment
Paying the minimum required amount for credit card debt and certain types of loans may seem like a good decision. However, this is only beneficial in the short term. That’s because the longer it takes for you to pay off the principal amount you borrowed, the more you’ll be required to pay in interest over time.
Furthermore, you need to make sure you’re making your required payments on time each month. Making late payments not only hurts your credit score, but it also leads to penalty fees that you’re responsible for paying on top of your current debt.