4 Simple Ways to Reduce (and Hopefully Get Rid Of) Consumer Debt This Year
Newsflash: Overall consumer debt in the US last year amounted to $13.9 trillion, the highest it’s been since data has been made available. This figure paints a worrisome picture of just how many people are currently struggling to stay on top of their personal finances. With over-dependence on credit cards, personal and student loans and mortgages, it’s easy to see how so many of us are fighting truckloads of debt each week, if not each day. Debts get worse the longer we wait to deal with it and as we begin this fresh new year, there is no better time than now to work on becoming debt-free.
The good news is that you don’t have to wait for the next big raise or that exciting new job–though you will have to have a reliable source of income in which to pay off your debts.
So if you’re keen to live your best, sustainable life without the stress of financial burdens, here’s how you can tackle your debts right now, even if you don’t make a six-figure salary:
1. Review your finances
To get out of debt this year, the first thing you need to do is to get the whole picture. Put differently, you need to figure out exactly how much you owe on your debts; who you owe, how long you’ve owed, and how much has been paid and left unpaid. This is a crucial step for one very simple reason; without taking stock of your current debt situation, it’ll be hard to properly plan your ‘debt attack’.
Now whether you track your finances the old-fashion way by putting pen to paper or through more refined ways such as setting up an online budget tracker, it’s entirely up to you. The important thing is that you start off with a complete understanding of your personal finances because that way, you can better develop your plan for tackling your debts effectively.
2. Consolidate your debts for a lower interest rate
Consolidation is a sure way to tackle your loans because it combines all of your unsecured debts into a single monthly payment. While you’ll need a good credit score to qualify for this (and hopefully you have one) debt consolidation is an easier way to pay down debts, and finance companies will usually offer a low interest rate to win your business.
In some cases, it may even be possible to use a balance transfer credit card to roll multiple debts into one, while simultaneously attracting a lower interest rate. You’ll need to invest time and research to figure out if consolidation makes sense for your particular financial situation, and it may be in your best interest to consult a financial advisor.
3. Snowball the small debts out of the financial picture
Simply defined, ‘snowballing’ is a process that allows you to pay off smaller debts first while letting you save the largest loans for last. Put differently, it enables you to enjoy a few wins (which is great for your psyche) while giving you the necessary mental push on your journey to living a debt-free or minimal debt lifestyle. If you can afford to pay more than the minimum monthly payments on these smaller debts, you might want to consider listing all your debts in ascending order.
So direct your funds at the smallest debt on your list, while making the minimum payments on the other loans. After the smallest balance is paid off, channel your extra funds toward the next smallest debt until you pay it off too, and so on. This way, you will quickly pay off these debts and free up funds for the larger debts.
4. Cancel unused subscriptions and memberships
I hate to break this to you but you might be spending money while struggling to get out of debt and not even realize it. Consider subscriptions to online news sites and magazines that you likely never read. What about all those cable TV channels? Do you really need them all? And what about the “free-trial memberships” you signed up for with your credit card where the free period ended and now you’re being charged for something you don’t even use?
The problem with these unused subscriptions and memberships is that most of them automatically renew themselves. And if the service has your credit card information, they’ll continue to charge you until you cancel (or the credit card expires whichever comes first). It’s a hassle to cancel all those things, but it’s worth it if you really want to get out of debt this year. Financial health company Trim can help you out here because the software is designed to go through your recurring charges and cancel the ones you no longer use (for free).
Last bits of advice: Avoid consumer temptation wherever you can and be patient with yourself. Commit to your chosen debt reduction plan and stick to it for as long as necessary. It took time to acquire all your personal debts, so don’t lose faith if it takes the next few months (and even years and decades) to pay them all off. And try living within your means; the next time you want to buy a consumer good and you don’t have the money to pay for it, think twice before going into debt again just to get it.
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Feature image by Alice Pasqual.
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