Are you swimming in a sea of debt and don’t know how you’re ever going to pay it all off? Well you’re not alone. According to the Federal Reserve ,consumer debt hit a quarterly record of over $4.31 trillion in the second quarter of 2021. In July 2021, U.S. consumer debt increased at an annual rate of 4.7% to more than $4.33 trillion.
Here are a few strategies and habits that will help you pay down your debt, but before you start repaying debt, it’s important to identify priorities.
First, take a moment to list out the kind of debt you have whether it’s credit card debt, student loan debt, mortgage debt or something else and determine how much debt you have. Understanding the type and amounts of your loans can help you come up with a more personalized plan for debt payoff. Understand that it takes a significant commitment to pay off debt similar in scale to quitting smoking or stopping drinking .
Some debt like a mortgage is long term and often viewed as a forced savings . The priorities should be paying off consumer debt, i.e. credit cards starting with the smallest bill . As each bill is paid off add the payment to the next bill going from 5 bills with 5 payments to 1 bill with 5 combined payments .
Next those pesky car and boat payments . While transportation is a necessity , vanity car leases and or boats payments are a huge financial drain for most people . They offer little in return other than flattering the ego . It is best to eliminate and or scale down these purchases . It you are dedicated and its a personal priority , buy slightly used and pay cash.
Once you itemize your debt then you can create a realistic budget . A realistic budget will give you a blueprint on where you stand financially. Your budget should tell you where you need to spend less or perhaps pick up some alternative ways to raise cash and cut expenses .
Careful examination will reveal where you are overspending and what financial commitments you should eliminate . Some examples are daily purchasing of overpriced coffee and lunch , gym memberships you never use , and vanity leases on automobiles . Some bad habits can be quickly remedied , like bringing your lunch to work instead of going out , eliminating morning coffee stops or quitting smoking . Most people in debt discover they are spending far more than they think on miscellaneous items that they can’t seem to identify .
If you have trouble coming to grips with what you are spending , set up and keep a daily expense log , most will be surprised by how much money they spend on a daily basis on non essential items.
In budgeting do not forget your personal priorities and responsibilities , some gratification can be postponed but some responsibilities are non-negotiable , like your child’s education expenses . The second car can be sold , the yearly two week vacation to Europe can be scaled down or cancelled , the new motor bike can be postponed but books for school must be bought . If you have nothing large ,hold a garage sale and sell off unused and unwanted items. Cash raised should go to paying down debt .
Stop using credit cards all together . This is easier said than done , but there is nothing like paying cash for items to scale down spending. It is very difficult to go from the habit of buy now and pay later to putting money aside to buy an item , especially when you are deep in debt . Sometimes a spending moratorium is necessary . Leave the credit cards at home or more drastically just cut them up . Forestall any non essential purchases for 30 to 90 days.
After you have sold off unwanted items , it’s probably a good time to reconfigure your budget again , review your spending priorities and perhaps a part time job to increase your free cash flow .
The virtue of a debt free lifestyle can not be overestimated . less bills mean less pressure and more control over your own destiny . It also takes far less income to live a nice lifestyle again giving you more career flexibility .