It’s not difficult to accumulate debt. Make a few purchases with your credit cards, finance a new car, buy a house, and your monthly overhead will increase dramatically. Getting out of debt, on the other hand, is more difficult. You could apply for a debt consolidation loan or create a plan to get your debt under control. Here are six tips for how to do that:
Calculate your debt number
Before tackling the problem of paying off debt, you’ll need to know how much you owe. Many consumers look at debt as individual balances and not as a cumulative whole. Add up all those outstanding balances. Include credit cards, loans, mortgages, and any lines of credit you still owe money on. The sum of all of these is your debt number.
Make a list with interest rates and balances
Two common debt payback methods are the debt snowball method, where you pay off the debt with the highest interest rate first, and the debt snowball method, which involves starting with your smallest balance, paying that off, then moving to the next smallest. Whichever you choose, you’ll need a list of interest rates and balances to set it up.
Create a new budget with stricter spending rules
You’ll want to be able to pay your creditors as much as possible each month. Creating a budget with strict spending guidelines is the best possible way to do that. Cut out extras like take-out food and expensive entertainment activities. You don’t have to live like a monk, but sacrificing a few extras in the short run will pay off big for you down the road.
Prioritize high-interest credit cards
High interest revolving balances on credit cards can be a major headache for consumers. Retail stores issue them and encourage shoppers to use them with sales and incentives. Traditional credit card issuers offer points and rewards. Prioritize paying off your credit cards first will lower your credit utilization rate, one of the factors used to calculate your credit score.
Avoid taking on new debt
Speaking of credit scores, did you know that yours will go down every time you open a new credit account? That’s in addition to taking on new debt, which you don’t need when you’re in the midst of a debt payment plan. Stop applying for new credit, even if you’re “pre-approved.” That’s a trap that will just bury you deeper. Don’t fall for it.
Train yourself to pay cash
The term “cash” also includes your debit card, so you don’t have to walk around with large rolls of paper money. The point of this step is to condition yourself to using payment methods that aren’t adding to your total debt. You’ll be surprised at how much money you can save by doing this. Your spending will be more frugal when you need to come up with the funds right away.
About the Author : Kevin Flynn Kevin is a former fintech coach and financial services professional. When not on the golf course, he can be found traveling with his wife or spending time with their eight wonderful grandchildren and two cats