Debt. In this day and age it is something that seems inevitable. With student loans racking up about $50,000 and an average car loan being about $27,000, it is not a surprise why. In fact, it is estimated that the average household will accumulate over $155,000 in debt.
Americans have an average of 3 credit cards a piece. Improper use of credit lines can run you into the ground fast if you are not careful. Some are forced to use credit cards when emergencies arise when there should be savings set aside to cover them. Then there are others who use their cards for purchases they couldn’t afford with cash.
Regardless of what caused your debt, you want to work towards fighting it. Below we break down four ways to reduce the debt you’ve accumulated over the years.
1. Create A Plan
To kick off your journey to becoming debt free, you need to have a clear and realistic plan.
Creating a plan on your own can lead to some success however, you should take advantage of a planning tool. A debt payoff planner may very well be your best friend in helping you shed off those piles of debt. Input your income, debts and timeline goals into these planners and they will devise the best payoff plans for you. Some may even compare different payment methods for you to decide which works best for you.
Debt payoff planners are completely customizable to help you with your unique financial lifestyle. These planners are packed with helpful features such as spending tracking and debt breakdown charts to make understanding your debt that much easier. Having a visual representation may be just what you need to see to help you change your lifestyle to fit your plan.
Visit Get Out of Debt to find a breakdown of several popular planners to decide which one will work best for you. Utilizing these will slowly help you inch closer towards financial freedom with the confidence of understanding your finances.
2. Start Saving
While your debt does need paid off as quickly as possible, it is important to prevent yourself from accumulating any more. One of the best ways to prevent future debt is to save! When crafting your financial plan, be sure to account for money you will need to save.
Saving money may seem counter productive when you see your large debts that still need paid off. Your savings, however is your cushion against fall back into the position you may already be in.
We must understand that not everything we plan in life follows through, especially with our finances. That is why it is important to save up money for unexpected or emergency expenses such as accidents or injuries.
In the event you are confronted with a major cost that you are unable to pay, you may be urged to reach out to credit cards or loans to pay for these expenses. This will just continue the cycle of debt that you are trying to break free from.
Setting aside money monthly for savings should be just as important as paying off your current debts. Start with small amounts, perhaps $84 a month and you will have saved $1,000 in just one year. Ultimately, your goal is to save 20% or more of your paycheck. Getting to a place where you can afford to save 20% may take a few lifestyle changes, but it will be worth it. By saving money in the right manner, you can remain confident that you are able to handle an expensive situation that happens unexpectedly.
3. Manage Monthly Credit Card Usage
Currently the average American household is $16,000 deep in credit card debt. This is because many Americans use their credit card incorrectly.
Credit card are not to be used for expenses we cant afford with our money such as vacations or shopping trips. Credit cards should strictly be used for building and maintaining a good credit score. Credit card can also be a second line of defense if any unexpected costs hit.
It is best to never go over 30% of your allotted credit monthly. This means that if your card has a $2,000 limit you should spend no more than $600. Not only does keeping below this amount keep your debt at a manageable level, it will help to raise your credit score too.
While you see your credit card as money available to you, it is only borrowed money. Respect your card as borrowed money and prevent it from burying you in debt.
4. Pay All Payments on Time
Sticking to your plan can be the most difficult part of tackling your debt. Most times your debt relief plan will require several changes in your lifestyle and spending. These changes may seem inconvenient but they are the key to debt freedom.
By saving more money you can ensure your payments towards your debts are made each month. Proper monthly payments will keep you steadily climbing out of your debt hole.
Missing payments can send you deeper into debt. Not only will you have to pay the outstanding balance from the missed payment, but many loans and cards will also charge you interest on this debt.
Interest is a yearly charge based off your debt owed to a company and varies between 1-15% of your debt total. For example, if you owe $3,000 on a loan with a 5% interest rate you will be charged an extra $150 each year you do not pay off that debt. Making monthly payments can lower your total loan amount, thus lowering your lifetime interest rate.
With your plan in place now, it’s time to buckle down. Stick firmly to your financial goals and focus on becoming debt free. This may be a fight, but don’t let it become draining. Every step you make towards becoming more financially responsible is a step in the right direction.
If you have any advice or tips for combatting debt, leave a comment and share your experience in the section below.