If you’ve ever tallied up your debt and felt completely overwhelmed, don’t worry you’re not alone! The average household debt in America, including mortgages, is roughly at $132,500. While not every American’s debt is that high, or that low, any kind of debt can be a financial and emotional strain for your family – leaving you wondering how to even begin tackling it.
If you find yourself completely at a loss of how to conquer your debt – whether it’s credit card debt, student loans, auto loans or a mortgage, we can help! Here are our 7 tips on how you can begin paying off your debt and move onto more exciting financial goals.
1) Organize Your Finances
This is the first and most important step. Take some time to round up all the accounts in your name — banking, student loan, car loan, retirement, savings, anything with a balance — and enter them into a free money management tool such as Mint. These give you an at-a-glance look at your debts, balances and even your net worth. It’s also an easy way to track your progress over the months and years.
2) Set Up A Payment System
If you haven’t already, set up automated payments or at least a reminder system for all your loans and bills — whatever works for you. The goal is to build a habit of on-time payments. This will keep you from throwing away money on late fees. Also, over the months and years, a history of paying on time could boost your credit score.
3) Say No To New Debt
An important step to conquering debt is making a commitment to avoid new loans. Financial guru Dave Ramsey recommends saving up a $1,000 cushion so you don’t have to pull out the plastic when it’s time to pay surprise expenses, such as a doctor visit or new tires. Beyond that, put off replacing your old car for a few more years: car repairs are cheaper than a car payment! Resist the urge to upgrade your devices and postpone that big vacation. Delayed gratification today reaps bigger financial rewards later.
4) Track Your Spending
The best way to cover your bills and conquer debt is to maintain a monthly spending plan – again Mint is a great tool to help track your spending. If you enter the month with your eyes wide open on upcoming expenses, you’re less likely to torpedo your efforts with impulsive spending you’ll regret later!
5) Prioritize Your Debts
Once your $1,000 emergency fund is established, choose one debt that needs to go first. Whenever you have extra cash, whether it’s from monthly budget savings, a tax return, a bonus or part-time job earnings, dedicate it to extra debt payments until it’s gone. When that first debt is eliminated, direct that old payment toward the next debt until that’s gone as well. Repeat this process until you’re debt free! How do you decide which order to pay your debts? Some say starting with the lowest-balance debt is the way to go. Others say attacking the high-interest accounts first is best. It depends on what works best for you! Do you need small milestones to set for yourself in order to keep on track? Then maybe try paying off a low-balance debt first as you’ll pay that off much faster and give you the sense of accomplishment you’ll need to attack your next debt!
6) Slash Your Spending
If your debt-reducing effort needs a bigger bucket, it’s time to launch into full-on ruthless bargain-seeker mode. When you find a great sale price on staples and supplies, stock the cabinet! Reduce entertainment spending and look for ways to have fun that cost little to no money. Look at your other expenses and search for ways to save. For example, opt for pre-paid electricity from First Choice Power. Not only does it help you keep an eye on your electricity usage and monthly bill, but you also get free electricity all weekend long!
7) Earn Some Extra Money
If your goal is to eliminate debt ahead of schedule, the best way is to focus on it. Earn extra cash and apply heat to those balances. Maybe it’s time to ask for a raise or look for a higher paying job. If that’s not in the cards right now, take on a part-time gig and direct these earnings to melt your balances.
Roll up your sleeves and break the debt logjam to get fortune flowing back in your favor. Is it easy? No, but in the long run, it will be one of the best things you can do for yourself and your family!