5 Ways to Help Reduce Debt
Reenergize your goals and improve your finances by finding ways to consolidate and pay down debt faster.
If you’re like many Americans, you may have decided that now is the time to fix up your finances and reduce your debt. Sound like you? Read on for some basic tips to help make your plans a success.
Organize your debt
If you pile up bills and statements without a second thought, it’s time to get organized. Make a list of all your debt, including auto loans, personal loans and credit cards. Note the balance, interest rate and minimum monthly payment for each.
Rank your list from the highest interest rate to the lowest to see which debt is costing you the most. You’ll probably want to prioritize paying off your balances in this order.
Keep a spreadsheet of your debt handy and update it whenever you make a payment. This way, you can track your progress and stay motivated as you pay down your balances.
Consolidate high-rate debt
If you’re struggling to manage several balances, you may want to consider consolidating your debt.
“Debt consolidation” is the term for combining several balances into one loan. For example, if you have balances on several high-rate credit cards, you could transfer those balances to one single card with a lower rate. (Many cards offer special rate offers for balance transfers.) Or, you could open a low-rate personal loan to pay off all your credit card balances.
Debt consolidation can be a smart way to lower your interest rate and streamline your debt into one monthly payment.
Make a payment plan
After you’ve organized and consolidated your debt, it’s time to create a longer-range plan.
Generally, you’ll want to focus on paying off the balance with the highest interest rate first, as this debt is the most expensive. Once you’ve paid off that debt, move onto the next highest rate.
Some people prefer to start by paying off the smallest balance first, saying that it makes them feel more motivated to see change happen quickly.
Whatever type of payment plan you choose, make sure you’re paying at least the minimum monthly amount on all your balances to avoid late fees and penalties.
Create a budget (and stick to it)
The best way to reduce your debt is to follow a budget. It will help you see where your money is going and find ways to save more. Then, you can put that extra savings toward paying down your debt.
Keep track of all your spending, including necessary expenses (such as your housing payment, electric bill and groceries) and extra expenses (such as restaurants and entertainment).
Look for simple ways to cut down on spending. Buy generic groceries, cancel your cable, take your lunch to work, shop at consignment stores and more. Be sure to explore our savings tips, too.
(TIP: Make sure you have enough in your emergency savings to cover three months’ expenses in case of the unexpected, such as a job loss. If you need to build up your emergency savings, try to do so before making extra payments toward your debt.)
Talk to the experts
Maybe you aren’t sure how to get started, you want to make sure your plan is working, or you just want to talk to someone about your finances. Help is here for you!
Schedule a Credit Consultation to meet with one of our financial experts. They’ll review your debt and credit score and look for ways to help you save on interest and reduce your payments.
You can also partner with GreenPath Financial Wellness, a nonprofit organization that provides free financial counseling, debt management services and financial education tools.
Both services are free, confidential and one-on-one.