Getting into debt is the fun part. Getting out is the hard part—and to some, it may seem impossible.
But if you’re in this situation, you certainly aren’t alone. The average American has about $38,000 in debt, and given this steep figure, it’s easy to see why many of them feel like they’re struggling to stay afloat.
Learning how to cut debt and save money won’t remove the stress of your debt overnight. However, it will set you on the right path toward more financial freedom, one step at a time. Here are the tips you should follow, even when escape seems impossible.
Stop Adding to Your Debts
Just because it seems like you’ll never get out from under your debts doesn’t mean that’s the case. So if you’ve been making big purchases without worry, under the assumption that you might as well, it’s time to stop.
Accept that you’re going to do everything you can to get out of debt, and stop making any unnecessary purchases. If you think you may need some extra protection from temptation, consider cutting up your credit cards, freezing your credit, or even talking with a financial therapist who can help encourage a healthier relationship with your money.
Pay As Much Toward Your Monthly Payment as Possible
Obviously, the more debt you have, the longer it will take you to pay it off. However, it’s worth remembering that interest is an important factor in this equation. When you’re paying only the minimum monthly payments, you’re allowing any leftover balance to rack up interest charges over time.
In other words, you’ll want to do what you can to make a significant debt on those outstanding balances.
Build a Budget
Budgeting is the key to success for any financial plan, and that’s especially true if you’re trying to get out of debt. The right budget can help you stretch each dollar a little further, and it can also make sure you know exactly where all of your income is going.
If you’re new to budgeting, try a simple strategy like the 50/30/20 budget. With this strategy, your essential needs comprise 50% of your budget, while wants are 30%. The remaining 20% goes to paying down your debt or bulking up your savings.
You can track your budget using a pencil-and-paper ledger, a spreadsheet, or even one of many budgeting apps.
Don’t forget to pair your new budget with basic tips to save money: cook at home instead of eating out, lower your utility bills, and reconsider transportation, for example.
Make More Money
This, of course, may be easier said than done. But as you can probably guess, the more money you make, the more money you can put toward your debts.
This doesn’t need to mean a new job or a request for a promotion, though both of those options are valuable. You can also use your skills to start a side hustle, like freelance consulting or coding. You can rent out a room through Airbnb or use your evening hours to take a part-time gig.
Even if you only work a few extra hours a week, it can be enough to help you pay down your debt a little faster than you could otherwise.
See if You Can Negotiate a Lower Interest Rate
Interest rates are often negotiable, so it pays—literally—to ask the issuers of your credit card to lower that rate. This occurs on an as-needed basis, and your creditor may be more likely to agree if you have a history of making consistent payments.
You may also be able to get a lower interest rate by transferring your current balance to a new card during a special promotion. If you have this opportunity, make sure you can pay down your debt before the promotion expires, as the low-interest rates are usually temporary.
Consider Debt Consolidation
Debt consolidation (also called loan consolidation) can help you reorganize multiple high-interest debts into one payment. This new payment usually comes at a lower interest rate as well.
You can do this yourself in multiple ways. As mentioned above, you can transfer your existing debt to a low- or no-interest credit card. Depending on the type of debt you have, you may also want to consider a debt consolidation loan or a home equity loan for lower rates. However, these options can be complex, and you may be at risk of repossession if you don’t pay the minimum amount.
This is where expert guidance may help. If you’ve been worried about payday loan consolidation, for example, you can get real PDL help. If you’re worried about credit card debt, on the other hand, you can reach out to a credit counseling agency. Make sure to check the Better Business Bureau before trusting a company to help you with your debt, however.
Pull Money From Other Sources
If your debts are extreme, you may need to pull money from other areas to pay them off.
If you have money in retirement accounts, you can put this cash toward your debts, for example. However, if you’re under 59½, you’ll have to pay penalties for the early withdrawal. In addition, you’ll be borrowing from your own retirement, potentially leaving yourself short-changed later in life.
If you have a life insurance policy, you might also consider pulling money from it to tackle your debts. Like the strategy above, you’ll have to deal with financial penalties. It may impact how much money is paid to your beneficiaries upon your death.
These options, again, should only be considered if you have very high debts to pay off, as the consequences are long-lasting.
Start Deciding How to Cut Debt and Save Money
Each person’s financial situation looks different. The strategy that helps you learn how to cut debt and save money might not work for someone else, and vice versa.
That’s why it’s so crucial to weigh each of these strategies carefully, including potential drawbacks. With a little time and effort—and even expert support—you’ll be able to take your first steps toward a debt-free life.
Looking for more of the finance tips you need in life? Check out our other posts to learn more.
The post How to Cut Debt and Save Money When It Seems Impossible first appeared on Weirdomatic.
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