The average American has more than $90,000 in debt. From credit cards to loans to mortgages, most people have some form of debt that they need to repay.
Along with putting a drain on your finances, debt can leave you feeling overwhelmed with stress and worry. Paying off your outstanding balances is a helpful way to mitigate these feelings, but what is the best way to reduce the amount you owe?
In this article, you will find tips for understanding how much your debt truly costs, helpful ways to prioritize loans, and how you can take steps to get out of debt.
How do I calculate how much debt I have?
The easiest way to understand the amount of your debt, plus interest and late fees, is to use a debt calculator. Simply input the amount you have left to pay on a loan or credit card, the interest rate, and how much you are paying down every month. The calculator will show how much interest you will end up paying based on your monthly payment.
You can input different monthly payment amounts to see how much you can save over time. This knowledge will help facilitate your goals for paying off your debt sooner.
1. Prioritize your debts
If you have multiple loans or credit cards with outstanding balances, start by determining which debt to pay off first. Typically, you should focus on the amounts with the highest APR or interest rates. Interest fees create additional debt every month, so the faster you pay off debt with higher rates, the less you may be spending in the long run.
Suppose you have multiple loans or credit card balances with similar APR rates. In that case, try making higher payments on the one with the largest balance. You may lower the interest payments on that debt, saving more overall.
Once you know which debt to focus on, plan to pay off that debt as quickly as you can. Make the minimum payments on all other debts to avoid late fees while putting as much as you can toward the balance with the highest priority.
2. Create a budget
Spending more than you make, or as much as you make, will add to your debt total and prevent you from paying your debts down. Ensure you can make extra payments on your debt to continue to lower the balances.
By creating and sticking to a budget, you can help prevent adding new debts and pay off your outstanding balances faster. Cut out any unnecessary costs to prioritize monthly payments. At a minimum, your budget should help you live within your means. With practice and discipline, you can lower your expenses and maximize the reach of your income.
3. Increase your income
There are many ways to earn extra cash that you can then put towards your debts. Pick up odd jobs, sell items that you don’t need anymore, or take extra shifts at work. If you give every additional dollar you make to your monthly payments, you can pay your debts faster and spend less on interest fees.
4. Keep track of your progress
Motivate yourself by adding up your total amount paid off or how many extra dollars you were able to put toward your debt. These are helpful ways to help you feel like you are making progress on the days where you might feel discouraged.