Have personal debt? This blog is your reality check. Make it to the end, and I promise you will leave with some good takeaways to help you get your debt in good standing this year.
So, let's get right to it.
The cost of living is higher than ever, interest rates keep rising, and it seems like it keeps getting harder to stay afloat, let alone get ahead.
With the challenges of the past few years, many of us have more debt than we're comfortable with— so, how do you get ahead while you're still trying to catch up?
We have six tips to help you pay down your debt and get back on track this year.
- Take stock of your debt.
It's only possible to fully understand your situation if you take the time to identify everything you owe.
Unfortunately, looking at your money situation can be stressful. Because of this, many people ignore their financial statements and keep a rough estimate of how much they think they owe.
Psst, don't do this! Turning a blind eye to the numbers won't change them, and neglecting to look at your debts regularly will make it easier to continue spending.
- Identify which debt is costing you the most.
Between a mortgage, outstanding loans, credit card debt, car payments, lines of credit, and many more forms of debt, some will cost you more than others to maintain.
Once you have a clear picture of everything you owe, it's a good idea to look at the interest rate on each debt.
Why? Because planning to pay down the most expensive debt first will save you the most interest possible and pay down your debt faster.
So, make your money work as hard as possible by paying down that higher-interest debt!
- Consider consolidating your debt.
While working with a debt consolidator can temporarily hurt your credit score, it might be worth it in the long run.
It can be extremely stressful to look at multiple sources of debt, and it's easy to be overwhelmed by it all, which can lead to missed payments that hurt your credit score.
By consolidating your debt, you end up with one regular payment, which is much easier to manage. The temporary credit score hit can be well worth it if you have a complex debt situation or feel overwhelmed.
- Set a budget and save.
Once you have figured out your repayment strategy, plan so you're not working against yourself.
Look at the actual cash you bring each month and allocate those funds. Set aside money for living expenses, entertainment, and your existing debt payments.
If you have any leftover money, start putting that in a savings account. In addition, you should consider setting aside 3-6 months of living expenses (when you can) so that if something unexpected happens, you have the money to deal with it and don't have to rely on credit to help yourself.
- Adjust your credit card habits.
Credit cards come with many perks, but they're only worth while if you can pay the amount you're spending on them. Doing so responsibly builds your credit score and allows you to take advantage of the benefits of being a cardholder.
If you don't have the money to pay your credit card off each month, tuck that card away somewhere so you're not tempted to use it. It's easier than ever to tap your card, but without the funds to back it up, you'll find yourself back in debt before you know it.
- Increase your income
Nobody wants to hear that they have to work more, but if, after looking at your financial situation, you find that there isn't enough money coming in to pay for what you've already spent, you will likely need to find a side hustle.
The only other option is to decrease your living expenses, which is tough nowadays.
Well, you made it to the end; and as you know, paying down your debt isn't anyone's idea of a good time, but it's essential. The debt isn't going to go away on its own. However, once you start seeing improvements, you will feel encouraged to continue until it's gone completely.
If you need help, you can always call your personal accountant to devise a strategy to help get back on track this year!
