How to pay down your debtDate posted: 1/11/17 09:00:00 AM
The average American household has $132,529 in debt, according to a study published by NerdWallet. From credit cards and auto loans to home mortgages, people across the country are struggling with substantial debt. If you're feeling financially crippled, here are some tips for paying off the money you owe:
Get your ducks in a row
To ensure you effectively gain control of your finances, Credit.com suggested first getting organized. Gather all the cards you're carrying a balance on and identify the amount you owe, how much interest is charged on each and when the minimum payment is due. In addition to your credit card debt, you'll also want to organize any other forms of debt you have taken on, as well as the interest rate and minimum payment due date.
Armed with this information, you will have a better understanding of how much you owe and where you should put your priorities.
Lay out your game plan
Getting control of your debt requires creating a budget noted U.S. News & World Report. Scale back on unneeded spending and determine how much money you need to spend on necessities and where you can make adjustments to your shopping habits. You'll want to create a bare-bones budget and stick to it. However, it doesn't necessarily need to be permanent. As you pay off various forms of debt, you can add back "extras" to your budget.
Once you lay out how you will spend money, stay on track to ensure optimal success.
Figure out a technique
There are several strategies for paying down your debt. Each person's situation is different, so explore and consider different techniques to find one that will work well for you.
One popular plan is to pay off the balance with the highest interest rate first. After looking at all the money owed, work to pay off the balance with the highest annual percentage rate. Designate the highest amount of money for that debt while still making minimum payments on other cards and loans. After paying off the debt with the highest APR, you can move on to the next highest.
"It may be worthwhile to pay off the card with the lowest balance first."
However, if you're interested in quickly making progress and marking things off a list, it may be worthwhile to pay off the card with the lowest balance first. A balance of $500 is much easier to pay off than a $3,000 balance.
Stop charging your cards
Once you pay off credit cards, you will want to keep these lines of credit open so they can continue to help your credit score. But, make sure you don't succumb to the temptation of racking up charges on those cards. Consider cutting up the card, hiding it, or only using it in an emergency situation.
Eliminate larger expenses
Consider cutting out big expenses that make an impact all at once as it may be less painful than reducing expenses a little at a time. For example, downsizing your home can save you a great deal and provide you with extra income to reallocate toward paying down your debt.
In addition, selling your car and switching to public transportation can help you tap into substantial cash. Not only will you gain access to money when you sell your car, but you'll also save on insurance and maintenance costs.
Consider increasing your income
To decrease your debt, you can increase your income. Working a few extra hours at your current job or taking on a second gig can help you pay down your debt at a much faster rate. Monetize your skills or simply look local for a small business that wants to hire someone for part-time and flexible work.
Another option is to sell some of your current belongings. Do you have a tablet you don't often use? A bike? Television? These items can generate extra cash that can assist you as you pay off your debt.
Debt can seem very overwhelming. However, with the right game plan, you can gain control of it.
- Top 10 tax terms you need to know - 3/6/17
- New Grad Tips: Average Living Costs - 3/3/17
- Go green without spending too much green - 3/2/17
- Buying a new home this winter - 2/28/17
- Reach your financial goals in 2017: Part II - 1/13/17