If you’re in debt it can be very stressful. Ultimately, you should aim to reduce debt. Follow these tips to help lower your debts.
The average American’s total debt is at an all-time high. In many cases, this can drastically impact your quality of life— especially when applying for a loan on a home or a vehicle.
Fortunately, minimizing (or even eliminating) your debt isn’t as hard as many people believe.
Not sure where to start? Don’t worry, we’ve got you covered.
Let’s take a look at everything you need to know about how to reduce debt.
Pay off Your Highest Interest Rates First
As you may expect, it’s not recommended to pay off all of your loans at an equal rate if they have varying interest rates. This is especially true for large amounts that have particularly high rates, as this amount can easily accumulate and making it difficult to pay it off efficiently.
So, focus on the debts that impose the highest amount in interest each month. Even if one loan is smaller than another, it can still add more to your overall debt due to its interest rate.
As you pay off these amounts, though, you’ll find that you can manage your debt far more easily.
Contact Your Lender
In some cases, your lender may be willing to work with you regarding the money you owe them. Although you may not be able to get complete forgiveness for your loans, you may be able to defer your debt payments so that you can have a little more breathing room.
In some scenarios, deferring payments on one type of debt can allow you to pay off other debt more aggressively.
Even if your lender isn’t willing to work with you in this manner, you’ll never know unless you contact them. So, make it a priority to do so if you find yourself feeling overwhelmed.
Pay More Than Your Minimum Payment
The longer your pay off a loan, the more money you’ll pay overall due to interest. If you contribute more than your minimum payment, it’s possible to pay off a loan in a fraction of the time.
Once you completely eliminate the financial burden from one loan, you’ll be able to tackle the other debt that you have in the same manner. Through this method, the most difficult segment is during the beginning of the repayment process.
As time goes on, you’ll likely find your debt highly manageable.
Avoid Adding to Your Debt
While this may seem readily apparent, it’s something that many people often forget.
For example, owing thousands of dollars in credit card debt can easily be exacerbated by consistently spending money with those same credit cards— even if you’re paying above the minimum each month.
Instead, you should focus solely on purchases that you need and minimize unnecessary transactions.
For those who owe a significant amount of money on their credit cards, you can visit this resource to learn more about how to clear credit card debt.
Establish a Proper Budget
This is a simple way for you to control your spending and set aside money to pay off any outstanding debt that you owe. Unfortunately, many people tend to struggle with creating a proper budget and often don’t know where to begin.
To help get started, consider expenses like:
- Monthly rent/mortgage payments
- Miscellaneous costs (entertainment, dining out, etc.)
- Transportation costs (vehicle repair, gas)
- Health-related costs (medication, gym membership)
From here, you should aim to minimize the amount that you spend on unnecessary purchases. Keep in mind, though, that you should try to avoid drastically impacting your quality of life.
For instance, a gym membership may cost $45 per month in your city. But, if it comes with plenty of amenities and staying fit improves your overall mood, it’s likely worth the cost.
Once you eliminate the superfluous purchases, you’ll often find that you have plenty of money to allocate toward paying off your debt.
Consolidate Your Debt
As the name suggests, this process essentially involves taking out a larger loan to cover all of the debt that you currently owe. From here, you’re only responsible for repaying the single loan that was used in this manner.
The main benefit is that you only need to worry about one interest rate. For those who have a large number of loans, the interest rate of a loan used during debt consolidation is often lower than the average interest rate of all of your loans cumulatively.
So, it’s often a favorable choice to make for those who are struggling to deal with the APR of the debt they currently have.
Although this isn’t the most traditional option, it’s possible to go through credit counseling in order to help pay off the money you owe.
The name can be misleading, though— this isn’t a class or course that you take that allows you to lower your interest rate. Instead, you work with an agency that will handle your debt on your behalf.
Instead of making payments directly to your lender, your money will go through them. Since they’re experienced in negotiating interest rates for debts that people owe, it’s highly likely you’ll benefit from this interaction.
Be sure to research your prospective debt counseling agency, though, as it’s important to fully understand your agreement with them before you sign any papers.
For instance, many debt management plans conducted in this manner last for a handful of years, which may be more or less than the current terms of your loan.
Understanding How to Reduce Debt Can Seem Difficult
But it doesn’t have to be.
With the above information about how to reduce debt in mind, you’ll be well on your way toward making the decisions that are best for you.
Want to learn more about how we can help? Feel free to get in touch with us today to see what we can do.