4 Easy Ways to Lower Your Debt
Debt is a huge problem in America. 80 percent of Americans are in debt, and with the rising cost of college, health care and overall inflation, the debt problem doesn’t seem to be going away any time soon.
Although some debt is necessary in order to build a good credit score, too much debt can be overwhelming and prevent you from living the kind of life you want to live.
Debt doesn’t have to ruin your life. With a proper strategy in place, you can lower your debt substantially and improve your credit score.
Here are four easy ways to lower your debt.
1. Figure Out the Total Amount of Debt That You Owe
You can’t solve a problem without knowing how bad it is.
Get a free copy of your credit score so that you know where you stand with your creditors. Once you’ve done that, write down the following for each individual debt:
- Interest rate
- Minimum monthly payment
- Annual fees for credit cards
The debts that you want to tackle first are your car note, personal and payday loans and credit cards. Don’t worry about your student loans and mortgage loans at this time. These types of debt are long-term and have a relatively low APR, which means you can focus on the other debt for now.
2. Figure Out Your Budget
Make a note of your monthly income, minus taxes, and write down the following expenses:
- Rent/house Payment
- Child care
- Student loans
- Utilities (gas, electricity, water, phone, internet, cable)
Subtract these expenses from your income total. The remaining number is what you can use to pay off your debt.
If this number is too small, find ways to cut back on your spending. If you have a cable subscription, you may need to cancel it. If you drive your kids to school, see if you can carpool.
3. Design a Debt Payment Plan
Now that you have your budget and you know how much debt you owe, it’s time to forward with a financial plan.
- Subtract your debt payments and monthly expenses from your overall income, after taxes.
- Use the remaining amount to pay off your debt.
- Start paying off the debt that has the highest balance and interest rate.
- Once you’ve paid off that debt, move on to the one that has the second highest balance and interest rate.
- If you can, increase the amount that you pay each month.
- Avoid making any purchases with your credit card.
4. Negotiate With Your Creditors
While you’re working on paying off your debt, get in touch with your lenders and creditors. Ask them if you can negotiate to get your debts paid off more quickly. They might be willing to reduce your interest rate, and in some cases, offer you a reduced settlement.
Have you tried any of the tips listed above? Do you know of an easy way to reduce your debt that wasn’t mentioned in this post? Post your comments below.