5 Tips for Debt Management
Do you feel like you’re over your head in debt? You’re not alone. It’s easy to be in denial about how much debt you’re in or feel overwhelmed with the process. While paying off debt isn’t easy, it is possible. Here are five tips for debt management.
1. Know what you owe
First things first, you have to face the numbers. While this may seem obvious, you might not know exactly how much you owe. You might think you have a rough estimate, but many of us underestimate how much debt we really have.
In order to manage your debt and come up with a plan, you have to know what you owe. You want to know the numbers, down to the penny. This includes all your debt — credit card debt, student loans, mortgage, car loan.
Next to each total balance, also include your interest rate. This will come in handy later. You can find out how much you owe by logging into your credit card accounts, loan servicers and looking at any of your financial statements from lenders.
You can also get a comprehensive idea of your numbers and the loans you have by checking your credit report. You can check your credit report for free at AnnualCreditReport.com.
2. Pay off high-interest debt first
Now that you know exactly how much you owe and have listed all the interest rates, you want to focus on repaying the high-interest debt first. Typically, this can be credit card debt. Interest can make it tough to get ahead and cost you a lot of money in the long run. That’s why you want to ditch that debt first. Then you can save money on interest and throw that extra money toward your principal balance.
So what you want to do is called the avalanche method. The avalanche method is where you pay the minimum on all of your loans and throw extra money towards your loan with the highest interest. Slowly but surely, you’ll pay off your high-interest credit card debt. Then it might be your student loans, and lastly it might be your low-interest car loan. Having a plan can help you focus and the avalanche method will save you money over time.
3. Put extra money toward debt
Did you get a raise? Birthday money? A year-end bonus? Put those windfalls of cash toward your debt. Extra money typically isn’t budgeted for so mind as well just throw it toward your debt to advance your goals.
Another hack is to make bi-weekly payments on your student loans. Your student loan interest accrues daily. So even if you take your payment and divide it by two and make bi-weekly payments instead of monthly payments, you could cut down on interest.
Throwing any extra cash toward debt and making bi-weekly payments can help you pay off debt faster.
4. Go on a cash diet
If you’re trying to lose weight, you typically start eating healthier or go on a diet to shed some of the pounds. You can do the same with your cash.
If you’re carrying around some extra weight of debt, you want to go back to basics. Go on a cash diet where you put your credit card spending on hold. This is especially true if your problem is primarily credit card debt. You can’t solve your problem with the same thing that got you into the problem!
So take a credit card detox and stick to cash. Using cash, you only spend what you have. Using cash over swiping cards can also change the relationship you have with money. You can feel yourself depart with your hard-earned dough rather than swipe without really thinking about it. A cash diet can help get your spending under control while you focus on your debt.
5. Address the root cause of your debt
If you want to get out of debt, you must address the cause of your debt. There are a lot of reasons people go into debt. Some people get into debt just to go to school. Some people start overspending because they’re not earning enough. Some people have deeper issues, like a shopping addiction to cure boredom/loneliness/depression, etc.
It can be tough, but look deep into why and how you got into debt. If you don’t address the cause, you’ll likely keep making the same mistake. To figure out the right solution, you need to know the cause. If you’re not earning enough and getting into credit card debt, focus on earning more through side hustling and negotiate for higher pay.
If you’re shopping or trying to keep up with Instagram influencers, look deeper into why that is. Knowing why you got into debt will help you find the right solution to pay off debt and stay out of debt.
Bottom line
No one said paying off debt is fun but the freedom you feel on the other side can be so rewarding. Imagine taking home all of your pay and ditching those monthly payments. Imagine funding your dreams. Using these five tips, you can work toward getting out of debt and becoming financially free.
Feel swamped in debt and not sure how to get out of it? Our Trainers can help you come up with a plan to get out of it! Schedule your free warm-up call to start!