It doesn’t take much to obtain credit, and it takes even less to rack up debt. When you get a credit card or a loan, you finally feel less restricted financially. But you can also easily get caught up purchasing more than you can actually afford. Americans under 35 have an average debt of $67,400; those aged 35 to 44 are $133,100 in debt; and those aged 55 to 64 have $134,600. Paying off your debt can seem like an endless burden, so we’ve compiled a beginner’s list for how to reduce debt.
1. Change Mortgage Payments from Monthly to Bi-Monthly
By changing the frequency of your payment to twice a month, you get to reduce the number of years on your mortgage. You will end up paying more every year, but it can help you pay off debt twice as fast. And if you get paid twice a month, it becomes easier to budget around these payments.
2. Stop Using Credit Cards
Because swiping cards or online shopping doesn’t show cash being handed away, we tend to not be mindful of these purchases. Interest rates can creep up on you and soon your small unpaid balance has multiplied. Limit your credit card use for emergencies, and stick to cash payments as much as you can so you can feel more accountable for your purchases. But don’t terminate your account—it lowers your credit score and can consequently implicate you as a risky borrower.
3. Sell Your Things
Clear your house from any clothes, books or devices you’re no longer using. Hold a garage sale or sell items online, and pool the money for debt payment. It may be difficult to let go of items with sentimental value, but it’s a sacrifice that can significantly cut your debt.
4. Pay Your Bills on Time
Companies charge interest for bills that are not paid on time. You rack up overtime charges, which essentially could go toward paying off the debt. Prioritize your monthly expenses with bill payments at the top of your list to avoid any overtime accumulations.
5. Cut Out Unnecessary Subscriptions
Subscriptions can cost anywhere from $20 to $145 a month, and you’re most likely not maximizing yours. Consider the value you are getting out of each of your subscriptions and determine if there are any that you can cut out from your monthly expenses.
6. Craft a Simple Budget
Creating a budget that subtracts your expenses from your monthly pay is a wise choice. List every expense you make for each month to monitor how much you actually spend. Cut down on certain “luxuries” like dining out, and learn to meal prep for the week. This can save a lot of money, and can significantly improve your health and lifestyle as well.
7. Organize a List of Debt Owed
Monitor your expenses by creating a spreadsheet that indicates creditors, owed amounts, paid amounts, and interest rates. This gives you a better overview of your debts and conditions you to spend less and save more. Pay the minimum amounts for each month, or prioritize debts with the highest interest rates.
8. Shop Consciously
Avoid buying designer clothes, and get your clothes from affordable retail or secondhand stores instead. Shopping should be the least of your needs so think twice before you buy, and only buy from stores that are within your budget. Avoid window shopping as well so you do not buy on impulse.
9. Purchase Commodities in Bulk
You can save a considerable amount of money if you purchase food and home needs from stores like Costco. Buy the necessities in bulk, and stick to generic brands as much as possible. Make a lifestyle change by cutting out junk food from your diet, allowing you to reduce your average spending. Focusing on your necessities cuts spending and helps pay off debt faster.
10. Create an Emergency Fund
While it may seem counterproductive while in debt, having backup cash is more prudent than paying with a credit card. You don’t earn high interest rates, and you are confident and assured that you have saved enough for certain situations.
It may feel daunting to figure out how to reduce debt, but it doesn’t have to be. It may take months, years, or decades to pay off your debts, but it is your due diligence to create a sustainable plan to manage your finances and with these simple steps, you will be off to a good start. Debt affects your quality of life, so it is important to stay on top of your monetary matters. Focusing on how to reduce debt and how to save money will force you to realign your priorities and get your finances in order.