5 Practical Tips on Reducing Debt
Debt is a part of life. It’s only when debt begins to hinder your life that it becomes a real burden. If you’re staring at the amount that you owe and wishing for a way out, we have a few practical tips that can help you reduce your debt and form good financial habits in the process.
1. Prioritize high-interest debt
Believe it or not, all debt is not bad. Things like cars and houses are necessities that we need to survive in the modern day. However, having high interest debt can cause you to feel trapped. Debt with high interest rates can make you feel like you’re only falling into a hole even though you’re making payments.
Things like credit cards or personal loans may have higher interest rates than things like your car or home. You want to focus on paying off these kinds of debts first. Once your tackle the high interest, it will free up more money to put towards other forms of debt. If you have a lot of high-interest debt, consider a low interest consolidation loan or transfer balances to a lower interest rate credit card.
2. Make bi-weekly payments
If you can manage it, try making bi-weekly payments instead of one monthly payment. This method may allow you to pay more than the minimum and help your debt go down faster. If you manage this method correctly, it should equal out to 1 or 2 extra payments per year, which is great for paying things down.
3. Try Going on a Cash Diet
If you feel like using credit and debit cards is keeping you in debt, consider going on a cash diet. This means taking out a specific amount of cash to live on for the week. This will help you keep track of how much you’re actually spending and stop you from overspending. Cash diets are a great way to reset your spending habits if you feel they are out of control.
4. Make Larger Payments
Similar to number 2, consider paying more than the minimum amount due on your debt. The minimum payment maximizes your debt.
Look at your expenses and see if you can manage to make more than the minimum payment. Cut out a coffee, sell unwanted items, or pick up an extra shift or side hustle to make more money. Even paying $10 or $20 more per payment could take years off your repayment schedule.
5. Look at your Tax Withholding
Are you planning on getting a tax refund? Already have that car or vacation picked out? Try putting some of that money towards your debt to help pay things down faster. Some people even try adjusting the amount of tax withholding to earn more throughout the year to help pay down debt. If going this route be sure to speak with a tax professional or your HR department. You don’t want to make any federal or state tax mistakes.
Getting out of debt may be a process but it doesn’t have to be difficult. Using even one of these tips could help make a dramatic difference in your financial situation, and put you on the track to financial freedom.