Tips to Reduce the Debt You Carry
Do you feel like you’re drowning in debt? Want to get it under control? There are many ways to lower your debt. From avoiding the need to take on debt to strategizing how you spend, there are many factors to consider when managing debt. Here are a few tips you should follow.
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Build an Emergency Fund If You Don’t Have One
Do you have at least six months of expenses set aside for emergencies? While it may not help with lowering current debt, building an emergency fund will help you avoid taking on debt in the future. For instance, if you were to lose your job or become hospitalized, you can pull funds from your emergency fund instead of taking out a personal loan with a very high interest rate. Basically, the key here is if you need to carry debt, you keep the low-interest debt and stay away from the high-interest debt.
Pay Bills on Time and In Full
Another way to control your debt is to pay your bills on time and in full. This includes all your monthly bills, including rent or mortgage, utilities, minimum debt payments, and of course, your credit cards.
A common trap many borrowers fall into is only paying the minimum required on their credit cards and rolling the rest over to their next statement, thus increasing their debt and racking on interest. By paying off that statement on time and in full, you essentially borrow that money interest-free for an entire month! Not only that, but on-time payments can help your credit score, whereas missed or late payments will hurt your credit score.
Make Adjustments to Your Budget and Expenses
Of course, the classic way to manage your debt is to make adjustments to your budget and expenses. If you find yourself spending a lot of money in certain areas, such as entertainment or merchandise, it’s time to start limiting the amount you spend on non-essentials and putting the difference towards your debt. Don’t know what your budget is? Aren’t sure if you’re spending too heavily? The 50/30/20 budget rule is a good starting point to figure out if you are on track. Learn about this rule and more on how to improve your budget with this informative blog post.
Strategize Your Debt Repayments
Now, you have extra cash to put towards your debts. How do you prioritize your debts if you have multiple? With a debt repayment strategy, you can lower the amount of debt you carry and the interest you owe. The Debt Avalanche Method is the recommended strategy as it targets high-interest debts and helps borrowers get out of debt as quickly as they can while saving as much money from interest as possible. The Debt Snowball Method is another popular strategy in which borrowers prioritize small debts and snowball their payments into the larger ones once those smaller debts are paid off. Regardless of which you pick, it’s important to remember that debt repayment takes time, and you can switch strategies if you notice that one isn’t working for you.
