The average American owes $138,722 in debt according to recent research. That debt can carry a whopping $1,162 in yearly interest. Knowing how to solve debt problems can seem overwhelming but it may be easier than you think.
There are a few easy things you can start doing today to make getting out of debt more manageable. From consolidating to budgeting, we’ve rounded up ten of the best debt problem solutions. Here’s everything you need to know to start getting out of debt today.
There are a number of debt consolidation solutions available o help you make sense of your debt. You’ll be able to combine credit cards, pay off certain bills, and make one easy payment.
Often times, debt consolidation payments offer lower interest rates. Consolidating your debt can save you thousands on interest payments alone. One of the biggest benefits is knowing that multiple bills get streamlined into one.
2.Make a Budget for Solving Debt Problems
Knowing how to solve debt problems starts with making a budget. You need to take stock of how much debt you have, how much income you have coming in, and what you’re spending money on.
To start making your debt plan, you need to start with a budget. Write out all your essential and non-essential expenses. List all of your debt payments including credit cards, student loans, and auto loans. Your housing expenses are fixed expenses so those can be considered essential.
Things like eating out, streaming services, and music subscriptions should go into the non-essential category. This will help you see where all your money is going.
3.Pay off Your Smallest Debt First
To start making real changes, start with your smallest debt first. Even if the interest rate is higher on a larger bill, getting something paid off will feel great. Go with the low hanging fruit in addition to making payments on your most expensive debt.
By tackling a small debt, you’ll be able to start knocking some bills off of your list while you slowly pay off that bigger debt. You can also take the small payments you don’t need to make anymore and apply them directly to another debt.
4.Make Saving Automatic
To help you save money, make the process automatic. Set an automatic debit from your checking account to your savings account for each paycheck. This money will be automatically transferred so you’ll never even notice it’s gone.
There are also apps that let you round up change to a savings account automatically. Although it may seem like a little amount, every penny will add up.
Once you look at your expenses, you’ll probably see some subscriptions you can cancel. Between streaming services and gym memberships, you can trim some non-essentials here.
You may be surprised at how many accounts you have that you don’t even use. You can apply the money you save on these bills to pay off your debt.
6.Set Goals, No Matter How Small
When you’re trying to pay off your debt, it is important to make goals. While becoming debt-free is your big goal, don’t forget about the smaller ones. These small goals should help you achieve your end goal.
Smaller goals are also great for your morale. The more you check off your list, the more motivated you’ll be to stay on track. Remember that each small account you pay off, you’re saving on fees and interests as well.
7.Make a Plan for Extra Income
If you receive any bonuses, tax payments, or extra income, make a plan on how to use it. Choose which debt you’d like to pay off with the extra money. Having a plan will help keep you from spending the money frivolously.
8.Eat at Home
Eating out at restaurants, ordering food, and even buying coffee each day can really add up. Look at your entertainment and grocery budget and see where you can improve. If you eat out a lot or order in delivery, try and cut back here.
Take the money you used to spend at restaurants and put it towards your debt. Not only will you be able to pay your debt sooner, but you’ll also save yourself from accumulating more.
Think about a five dollar a day cup of coffee. That adds up to $35 a week or $140 a month. In one year, you could save $1,680 to put towards your debt.
9.Invest in Your Retirement
Your retirement might seem far away but it’s something you should always be thinking about. Even when you’re trying to save money or eliminate debt, you should make saving for retirement a priority.
10.Use the Envelope Method to Solve Debt Problems
The envelope method is when you take a handful of envelopes, fill them with cash, and label them for different uses. Instead of using a credit card or debit card, for example, you use your designated envelope of cash for groceries, eating out, or coffee.
Using an envelope of cash helps to keep you from overspending. Once your cash runs out, you have to wait until the following week to pull from the next envelope. Overspending is easy to do on credit cards.
How to Solve Debt Problems
Knowing how to solve debt problems is one of the best things you can do for your financial health. The lower your debt, the better your credit score tends to be. This can help you attain better mortgages, car loans, and even higher-paying jobs.
Although it can feel overwhelming to pay off all your debt at once, making small goals, will lead to big payoffs in the end. Be realistic with yourself and set goals you know you can achieve. The more you chip away, the closer you’ll be to long term financial success. Visit the finance section for more great resources and tips.