The average debt load for Americans, including mortgages and car loans, is $132,529. Of that, over $16,000 is tied up in credit cards. All of this debt contributes to a high level of stress for many families. If you're ready to take charge of what you owe, these five steps will help you eliminate debt, and the stress it brings, quickly.
Before you can start paying down your debts, you need to know how much you owe. Take a moment to write down the balance on all of your accounts. Don’t forget non-credit card debts, like your store credit account or your student loans. Make a list of your loans and other accounts, their totals, and the interest rates on each one.
Once you figure out the total amount you owe, it's time to write down some tangible goals. These goals should be specific and time-sensitive. For example, you may decide that you will pay off your primary credit card by a specific date. As you make these goals, choose a realistic time frame. While it might be nice to be debt-free in a year, it may not be possible if your debt load is particularly large.
Next, break down your larger goal into specific steps you will take to reach your larger goal. Weekly and monthly goals will keep you on track to achieve debt freedom, and prevent you from becoming sidetracked along the way. In this breakdown, outline the debts you will pay first, second, third and so forth, until they're all gone.
Finally, create a budget. View your budget as your goal for each month. This will help you free up money to pay down your debts.
Once you have your plan in place, you have to start making the necessary changes to implement it and free up money to pay down your accounts. Here are three debt-reducing behaviors you can embrace to help you start paying off what you owe.
Unless you take out a second job, you'll need to find places to save money to free up funds for your repayment plan. Take a hard look at your budget, and figure out where you can cut your spending.
Look at things like:
What works for you may be different from the next person, but you must find places to free up funds, then funnel that money into your debts. Remember, these spending cuts are temporary, and only for this period of time when you’re paying down your debts. Once you have succeeded, you can consider adding these things back into your budget.
Paying only the minimum payments on your credit card bills means repaying those debts for years, all while accruing interest every single month. For instance, if your credit card has an APR of 21%, you're paying 1.75% of the balance every month. If the balance is 10,000 and you only pay the monthly minimum, this means $175 in interest charges added each month. If the minimum payment is $300, only $125 is going towards paying down the balance. You could easily be working on this one bill for over 30 years.
If you’re having trouble, get help. Talk to a financial planning professional or discuss your needs with your credit union or bank. You may be able to find more creative options to reduce your balance quickly, so you can move forward without the stress of high debt, with a little bit of professional assistance.
If you want to pay your balances off quickly, start with the most expensive debt, or the one with the highest interest rate. Pour all of your extra funds into this one, then roll that amount onto the next most expensive. By tackling them in this order, you can stay motivated to stick with your repayment plan while tackling the most damaging accounts first.
Large debt loads and high interest rates can trap borrowers into repayment cycles for decades. If you’re facing these situations, consider a debt consolidation loan. By consolidating all of your debts into one with a lower interest rate, you can more easily, and often more quickly, work your way out of debt successfully.