Out-of-control debt can limit your ability to cover basic needs and keep you from saving for the future. And for many Americans, this is a real problem. A recent GALLUP poll reported many Americans’ debt burden is growing, while millennials are bearing a heavy load.
But don't worry, there are options. With a careful review of your debt and a strategic payoff strategy, you can get out of debt and on to financial freedom.
Review all your debt
Begin by assessing your debt. Gather all your loans and credit card statements. Write down the balance, interest rate, minimum payment, and due date for each one. Identify which bill has the highest interest rate and which has the smallest balance. You will begin with paying down one of these loans in your payoff plan, which we’ll get to shortly.
Lower your interest rates, lower your payments
Next, contact your creditors and request a lower interest rate on your loans. If they can’t assist you, consider refinancing your home and car payments with another lender and transferring your credit card balance to a new credit card with a lower interest rate. This can lower your payments, immediately. Use a debt payoff calculator to see how much you will save with a lower interest rate.
However, please note, this is not a long-term fix but a short-term solution to free up extra cash you’ll use to eliminate your debt.
Determine what you can pay
Create a budget to determine how much money you can use toward your debt payoff plan. This is your net income less monthly expenses (e.g., housing, utilities, loan payments, food, and clothing). Any funds you have left over can be used to reduce your debt and save. Look for unnecessary expenditures, such as dining out and entertainment, which you can reallocate toward your debt repayment.
Once you’ve identified your extra money, you can start chipping away at your debt.
Make a payoff plan to get out of debt
Now that you’ve found extra money to use toward your get-out-of-debt plan, follow these easy steps:
- Remember the two bills you identified? Choose one to apply those extra funds toward to accelerate its payoff. If you choose the higher interest rate loan, you’ll save more money by eliminating the most expensive debt first. If you choose the smallest balance loan, you’ll pay it off faster for a quick morale boost. It’s your choice.
- In the meantime, keep paying your minimum payments on your other loans.
- Once you’ve eliminated your first loan, repeat steps 1 and 2 until you’ve eliminated all your debt.
Bonus Tip: When you receive extra funds through a tax return or work bonus, put it toward your debt. The quicker you’re out of debt, the closer you are to achieving your other dreams, like a trip around the world, a down-payment for a new home, or a stress-free retirement.