Many people aspire to be debt-free, however it can be a serious struggle especially if you have multiple credit, car, or student loans with high interest rates piled up. Debt can bog you down and prevent you from saving your money towards retirement funds, down payments for a home, vacations, etc. Luckily, there are some tips you can follow to help you tackle your debt.
Below, we listed 5 helpful tips for reducing debt:
Curb your spending and don’t take on more than you can handle
If you’re working towards paying off debt, every dollar counts. So it’s crucial you cut your spending and lower your expenses as much as possible. This can involve canceling inessential subscriptions or making minor life adjustments to reduce your overall cost of living. This can also include avoiding using credit cards and acquiring even more debt, since most people tend to spend more with a card than if they were paying cash on their everyday purchases.
Pay more than your monthly minimum
If you have the extra means, try to pay more than your monthly minimums. It may be tempting to pay only the minimums on your loans and increase your monthly pocket change, however it would be more beneficial if you made additional payments towards your debt. These extra payments mean you’ll pay less in total interest fees and save more money in the long run. This can also move up your payoff date and reduce the overall length of your loan.
Make multiple payments during each billing cycle
If you’ve been making your monthly payments and noticed you’re only making small dents towards paying off your debt, that may mean a large percentage of your payments are going towards paying off interest instead of your loan balance. So instead of making a single payment by your monthly due date, consider breaking it up into biweekly payments. Interest accrues continuously, so making multiple payments could help shave lots of time off your loan term, as well as save money off your total interest payments. This can also improve your credit utilization ratio and your credit score too!
Pay off debts in order of their interest rates
If you have multiple debts, the one with the highest interest rate (APR) would be your most expensive one. A great way to pay off your debt is using the “avalanche method,” which involves paying the minimums on all your debts and then putting extra money towards paying off your biggest loan (this excludes your mortgage). And once you eliminate this debt, you move onto your next highest one. The benefit to this method is that this will accelerate paying off your costliest debts so you’ll pay less in total interest fees.
Prioritize your smallest debts
An alternative to the “avalanche method” is using the “snowball method.” This involves making minimum payments on all your debts and then putting extra money towards paying off your debt in order of your smallest to largest loan balances. This method can quickly eliminate your smaller debts and give you small victories to celebrate. Paying debt can be a long and stressful process, so this is a great way to keep momentum and the satisfaction of knocking out your debts one by one will help you stay motivated.