Borrowers are often under tremendous pressure to pay off loans and lines of credit and most times find them very overwhelmingly unbearable. However, with some smart strategies, just about anyone can tackle their debt without feeling overwhelmed.
If you are struggling to manage your debt and do not have a plan to pay it off, start here. These easy ways to cut down your debt include financial strategies recommended by experts as well as simple tips to improve your money habits.
Before you start repaying debt, first make a list of each debt you owe along with its type, remaining balance and interest rate. Identify whether this debt is credit card debt, student loan debt, mortgage debt or something else.
1. Negotiate with your credit card company
2. Prioritize your payments
3. Pay your bills by the due date
4. Build momentum
5. Create a budget.
6. Pay off the most expensive debt first.
7. Pay off the smallest debt first.
8. Pay more than the minimum balance.
9. Take advantage of balance transfers.
10. Stop your credit card spending.
11. Use a debt repayment app.
12. Delete credit card information from online stores.
13. Sell unwanted gifts and household items.
14. Change your habits.
15. Increase your income with a side hustle.
16. Consider debt consolidation.
17. Get help from a credit counseling agency.
18. Avoid returning to bad habits when you reach your goal.
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Negotiate with your credit card company
Credit card company realize profit from customers by negotiation. Someone who has no hope of paying off a big balance might walk away completely, leaving the company with a significant charge-off. You can get your credit card company to lower your interest rate to help you get out of debt faster.
Prioritize your payments
If you have several credit cards, organize them by interest rate (highest to lowest). Your first mission is to eliminate debt from the account with the highest rate. Make minimum payments on the others and focus any surplus money on the most expensive card. Start small. If you can only afford to pay an extra $100 the first month, then that’s what you should do.
This process will take time. Depending on how much debt you have on the card with the highest interest rate, it could take many months or even years. Stick to it. Eventually, that balance will reach zero and you can move on to the next card on your list.
Consolidate your student loans
Student loans can stay with you for decades. That is not always a bad thing if you are able to take advantage of a lower interest rate by consolidating your loans. Putting all of your student debt into a single account will simplify your financial life by reducing the number of monthly payments you have to manage. Depending on when you consolidate and what kind of interest rate you can get, you could also dramatically reduce the amount you pay over the lifetime of your loans.
Student loans also generally have significantly lower interest rates than credit cards. That means you should focus your extra cash on your credit card debt while you continue to pay your student loans on time.
Pay your bills by the due date
Late payments cause many people to stay in debt longer than they should. When you pay a bill late, your interest rate can go up, and the company may also charge you extra fees. When you pay your bills on time, however, you don’t suffer those penalties. You get to keep more of your money instead of giving it to someone else just because you sent the check a few days late.
Build momentum
As you chip away at your debt, you will spend less money on interest payments and late fees. But don’t use the extra cash to take a lavish vacation. Commit it to reducing your debt even more. Eventually, you’ll find that you’re living without any debt at all. That’s when you really get to use the money you earn to enjoy life instead of barely making ends meet.
Create a Budget
To repay your debt, start by tracking your income and expenses with a monthly budget.
A budget is an easy way to get organized at the start of debt repayment. Yours can be as simple as a spreadsheet or more complex, utilizing budgeting apps like Mint to closely track every expense and debt payment.
Pay Off the Most Expensive Debt First
Tackling the most expensive debt first using a strategy called the debt avalanche involves repaying debts with the highest interest rates first. During this repayment strategy, you should continue to pay the minimum on your other, less expensive debts, but focus any extra cash you have available on the most expensive debts.
This strategy may save you money in the long run by getting rid of bad debts, like credit card debt, more quickly.
Pay Off the Smallest Debt First
This strategy, known as the debt snowball, requires borrowers to tackle the debts smallest in size first. Starting by repaying a small debt in full is easier than trying to take on a large student loan or mortgage debt, and repaying a small debt may provide you with the motivation you need to continue forward on your debt repayment journey.
Determining which debt to tackle first can depend on an individual’s financial stability and other factors.
Pay More Than the Minimum Balance
To make a real impact on your debts, you’ll likely need to pay more than the minimum balance on your credit card statements each month. Managing debt by using credit cards, which typically come with high interest rates, can be extremely costly.
You may also consider putting extra money toward the principal on a home mortgage, so long as those extra payments wouldn’t be better utilized on other debts.
Take Advantage of Balance Transfers
A balance transfer allows you to move your debt from one account to another, possibly taking advantage of low introductory rates. Applying for a new credit card and going through this process may not be possible for some individuals, depending on the card used and other options available. This strategy is best if you know you’ll be able to pay off the balance within a short time frame.
Stop Your Credit Card Spending
If overspending is causing you to add to your debts unnecessarily, try removing your credit cards from your wallet completely. This strategy is simple, but it can take away the temptation to overspend and allow you to focus on getting your finances under control.
Use a Debt Replacement App
Debt repayment apps like Tally and Undebt.it help users track their debts and provide a visual, easy-to-understand tool for paying off debts. Alongside these apps, take advantage of free credit reports and services that allow you to closely monitor your credit score.
Delete Credit Card Information from Online Stores
If it’s not enough to remove your credit card from your wallet, take this self-control measure a step further by deleting credit card information stored online on sites like Amazon. Online shopping can be a real barrier to becoming debt-free, so take steps to kick this habit.
Sell Unwanted Gifts and Household Items
Come up with some extra cash by selling unwanted items from your home. Put all the money from your sales toward paying down your debts.
Change Your Habits
Overspending and accumulating large debts is often a behavioral issue. Be honest with yourself about your daily habits and spending, then make the necessary lifestyle changes to start repaying your debts.
Increase Your Income With a Side Hustle
The larger your shovel, the faster you can dig. Increase your income stream by taking on a second job or freelance project, then use those extra funds to more quickly repay your debts. Jobs like pet sitting, tutoring or working as a virtual assistant are easy to start and can provide enough cash to make a dent in your debts.
Consider Debt Consolidation
Debt consolidation allows borrowers to repay their debt to a single loan with one monthly payment. Consolidation can also lead to a lower interest rate, and it can be an opportunity to negotiate a better repayment plan on certain debts.
Get Help From a Credit Counseling Agency
Debt repayment can be overwhelming. Contact the National Foundation for Credit Counseling to receive free help with debt management.
Avoid Returning to Bad Habits When You Reach Your Goal
Once you reach your goal, you’ll need to keep up your good money habits to stay debt-free. Take the time to understand how you came to be in debt to avoid finding yourself there again.
Summary
Although these steps and tips are not a guarantee that your debt will come off easy, but followed duly, they will help make your debt-repayment so less of a burden.