No one wakes up thinking, ‘I like being in debt.’ Yet, so many people have to wake up to that reality every single day.
According to the Federal Reserve, the debt portfolio of American households stood at $14.6 trillion as of 2021. The average American holds about $90,460 in debt. Those between the ages of 40 to 55 have the highest at about $140,643. This is closely followed by those between the ages of 56 and 74, at $97, 290.
You could very well be contributing to some of these statistics. But some strategies can reduce your debt and restore your financial health.
1. Take Stock of Your Financial Situation
Start by looking at how much income you bring in, and what goes out in terms of expenditure. If you are spending more than you are making, there is a problem.
Signing on to platforms like Chunk Finance can help you keep a close eye on your finances. They will help build your credit score by checking your credit utilization. You get notifications on things like overdraft charges, balance updates, and spending thresholds.
The platform provides key insights about spending, and ways to minimize interest costs. You get Analytics and tips on how to develop better spending habits. All these give you more control over your finances. It is a good first step to eliminating debt.
2. Develop a Budget
Coming up with a budget can help you reduce your debts. When you put things on paper, it gives a clearer picture.
Allocate money to everything you need to take care of every month. And, that should include any recurring debt paydowns and savings. Once you have everything in place, stick to the budget.
Here is a trick to consider. Put aside a little money for some wants. Being too rigid about where the money goes can work against you. You do work hard after all, so why not spend a little money on yourself.
But, do not be too generous with spoiling yourself. Get the priorities out of the way first. If there is a little extra, allocate some to what you like.
3. Consider Some Debt Repayment Strategies
There are also some debt repayment strategies that can help clear debts. These are proven effective techniques to help you get out of debt immediately.
Some that work include:
- The debt snowball method requires paying off small debts first. You then work your way up to the largest ones. It can be motivating to see your debt portfolio shrink with this method.
- The debt avalanche method is the opposite of snowball. You start with the highest amounts first. This method requires discipline. But, you can save money by taking care of high-interest loans quickly.
- Put any extra amount towards boosting minimum balances. In that way, you clear off debts faster and save on what would go towards interest payments.
- Pay off credit card debt fast with balance transfers. Some credit card issuers will give an interest-free period of up to 20 months.
- Consolidate debts and pay them off at once by taking a personal loan. Negotiate for favorable interest rates with the lender.
- Dip into some of your savings or tax refunds to take care of larger debts.
- This will be hard, but avoid relying on credit cards. Every time you swipe that card, you are incurring debt. Use your debit card, which is money you have in your account instead. That way, you only spend what you have.
- Supplement your income with a side hustle.
4. Rethink Your Spending Habits
One of the easiest ways to get into debt is through frivolous spending. Take a minute to think about where some of your money goes. There are some simple steps you can take to bring your spending under control.
- Avoid expensive restaurants or night outs. Cook a little bit more at home. But, we go back to our point above. Treat yourself to an occasional meal out. How about saving such outings for special occasions like birthdays, anniversaries, or other celebrations.
- Carry a packed lunch instead of buying from food vendors or restaurants
- Learn some simple DIY tricks to cut down on expensive trips to the salon or beauty parlors
- Learn when and how to shop. Go for discounts, promos, and coupons. Buy items off-season because they will be cheaper then. Don’t wait till winter, for instance, to buy warm clothing. Do it in summer, when everyone is buying lighter ones.
- Partner with family or friends for bulk shopping. Buying wholesale is cheaper than retail. Think about it like carpooling, another money-saving tip.
- Discover local vacation spots, instead of costly overseas trips, and so on.
Here is something that will give you a little motivation. Get a jar or piggy bank. Put in the money you spend every time you implement any of the money-saving ideas.
At the end of a specific period, say 6 months, open up the jar. Count how much you will have saved, it will shock you. Now, don’t run to spend the cash on some item to reward yourself. Put everything towards settling one of your debts.
Final Thoughts
If you are honest with yourself, some debts are entirely due to your financial habits. That is why we started off the article with the point of taking stock of your money situation.
Getting an overview of expenditure versus income is critical. Develop a budget that acts as a guide to your spending. The next step is to look up some debt paydown strategies. These include snowball, avalanche, debt consolidation, and balance transfers.
Finally, you want to ensure that you never go back into debt. That will require you to change some of your spending habits. We have shared some fantastic ways to keep your spending under control.
It will surprise you how much you can save by implementing some of them. And, do not be shy about getting financial advice from the experts, when you need it. Achieving good spending habits is hard. But, with a little discipline and dedication, you can do it.
