Debt cripples you financially and emotionally. Debt hurts your credit history and score, making it hard to buy a home or get funding for a business. Maybe you feel hopeless, and you’re not sure if you’ll ever get out of debt. It may take a long time, but with patience, effort, and consistency, you can pay down some of your debts. The first step is to get copies of your credit report and look over your debts. Write dispute letters to the credit bureaus if there are errors on your credit reports. The three credit bureaus are TransUnion, Experian, and Equifax. After you complete these steps, set up payment plans to pay down your debts. Here is how to reduce debt.
Know the Different Repayment Methods
There isn’t one way to reduce debt. There are several methods to choose from. The debt snowball method is when you pay off the debts with the smallest balances first before moving to your more difficult debts. This method encourages you as you make small wins toward your repayment goals. The debt avalanche method involves paying off debts with the highest interest rates first. This method helps you get rid of debt faster by knocking out the ones with high interest rates.
Look for Ways to Boost Income
Getting out of debt sometimes may require you to increase your income. Use the extra money to pay off debts. Sell items you no longer need. Sign up for dog walking apps such as Rover where you can walk dogs for clients. Look for remote work opportunities or work as a freelancer by cold emailing potential clients and offering specific services.
Slash Unnecessary Expenses
Another way to reduce debt is to slash unnecessary expenses. Create a monthly budget where you list all sources of income. Then you’ll list your fixed expenses such as the mortgage, car note, insurance payments, and utilities. List your variable expenses, such as groceries, subscriptions, clothing, and household items. Then write out your debts and what you put toward investments and savings. Remove all unnecessary expenses such as eating out, frequent vacations, and salon services.
Consider Debt Consolidation
If you have multiple loans, you can consolidate them into one new loan with a potential lower interest rate. Debt consolidation makes it easier to pay off debt, and it’s less stressful. As you use this method, don’t create new debt because it defeats the purpose of debt consolidation and hinders your debt payoff goals.
Use a Balance Transfer Card
A balance transfer is when you transfer a balance on your current credit card to a new credit card that has 0% interest for a specific period of time. The interest-free period on the new card lasts 18 months, and the goal is to pay off the transferred balance before interest accrues on the new credit card. You’ll need to make timely payments, or you’ll lose the 0% introductory rate and grace period.
Pay More than the Minimum Balance
Reduce debt by paying more than the minimum balance if your budget allows. This is important because as long as you’re only paying the minimum balance, you’ll take longer to pay the debt, and you’ll pay more in interest. It’s better to put extra money toward the debt so you can be closer to being debt-free.
Build Your Emergency Fund
While paying off debt, build your emergency fund. Emergency funds provide the money you need for unexpected situations such as job losses, deaths in the family, legal troubles, and health emergencies. When you have an emergency fund, you rely less on payday loans and credit cards to fund emergencies.
Use Surplus Money to Pay Off Debt
If you’re getting a bonus, inheritance, or a tax refund, use this surplus money to pay off debt. It’s tempting to use surplus money to buy cool things, but those items don’t lead to financial freedom. Use any extra money toward debt, and, in time, you’ll reap the rewards of your hard work.
Think About a Life Without Debt
Encourage yourself by thinking about the rewards of getting out of debt. Getting out of debt will give you more money for investing and building wealth. A life without debt may mean you’ll qualify for a business loan for the idea you’ve been wanting to turn into a business. Having no debt means you can travel more or even purchase your first home. This should motivate you not to give up on your debt payoff journey.
Do No-Spend Days or Weeks
Get creative with your debt repayment strategy by having no-spend days or specific no-spend weeks throughout the month. This helps you stay focused on your goals, and you’re not overspending. Substitute other activities for shopping on these days. Some ideas are reading books, doing chores, calling friends and relatives, working out, and working on hobbies.
Boost Your Financial Literacy
One reason many people struggle with debt is a lack of financial literacy. Read good books on personal finance and take notes that resonate with your debt payoff goals. Listen to personal finance podcasts and watch similar videos on YouTube. If you want to become a homeowner, attend local seminars on homeownership so you can be prepared when you decide to do it.
Cook from Your Pantry
Don’t waste money on groceries you may not need. Challenge yourself and save money by cooking with foods mainly from your pantry. Plan meals with these staples first, and once you’ve used up most of them, create a new grocery list with only staples that are on sale. Buy those in bulk and repeat the process. Remember that shedding debt isn’t just about financials; it’s about reclaiming your future and building true peace of mind. Debt doesn’t have to shackle you financially and emotionally. With consistency, patience, and effort, you can become debt-free.