Debt can be crippling if you let it build up without attempting to pay it down. Sometimes you can end up deep in debt because of an unexpected expense or problem, and it can feel impossible to get out of the debt you’re in. Especially after 2020 when so many people lost their jobs and unemployment rates rose from 3.5% to 11.1%, you may be struggling right now. Here are a few tips to help you with cutting down your debt and making sure that you don’t accrue more over time.
1. Have an Emergency Fund
Although this is more of a preventative measure, this can also help prevent you from getting into more debt. An emergency fund is the money that you have saved that can cover a few months of your basic living expenses.
2. Focus on Your Mortgage
If you’ve been struggling with paying your mortgage, you should definitely focus on this form of debt. 38% of people believe they would be scared when facing foreclosure, which makes sense considering the fact that losing a home is a terrifying prospect. Make sure that you’re able to pay your monthly mortgage, and if you’re struggling, ask your bank about refinancing your mortgage. This is a good option if the housing market is currently better for buyers than sellers and could help you save money on your monthly payments.
3. Set Aside Funds For Medical Costs
In America, medical costs can be a huge issue for uninsured people and can send you deep into debt if you have an unexpected medical expense come up. That’s why you should make sure that you have some money set aside that is specifically for medical treatments and costs. If there are certain chronic conditions you have that consistently cost you money, you should make sure part of your monthly budget includes an amount to set aside. For example, if you’re one of the 40 million Americans diagnosed with a communication disorder, you may need to set aside money for the costs of seeing a specialist to help with your disorder to ensure that you can continue managing it.
4. Pick One Debt at a Time to Pay Down
This may sound slightly counterintuitive — I mean, wouldn’t you want to pay all of your debt down at once? But it actually makes sense to choose one debt to prioritize over the others when it comes to paying down your debt. There are a few different ways to prioritize the debt account that you pay down, such as:
- Avalanche Method. For the avalanche method, you’ll be focusing on the account that has the highest interest rate. You want to make sure that you’re making the minimum required payments on all of your debt accounts to ensure that you aren’t neglecting any of your forms of debt. After that, take any other money that you’re able to save and put it towards your debt account with the highest interest rate. Once that account is paid off, you can focus on the next account with the highest interest, and eventually, you’ll have paid off all of your debt.
- Snowball Method. For this method, you’ll focus on whatever your debt account is that has the least amount of money owed. Once again, you’ll want to make sure that you’re paying the minimum required balance on all of the accounts every month. Once you’ve done that, you can put all of your extra budget dedicated to paying off your debt towards the account with the smallest balance. Once that account has been totally paid off, you can move to the next account, then the next, and so on and so forth until you’ve paid off all of your debt.
There are many ways to prioritize paying off your debts, but these are two popular methods that you can definitely use to help you on your journey to becoming debt-free.
5. Create a Detailed Monthly Budget
One of the reasons some people fall into debt is because they don’t know how to properly control their monthly spending habits. In order to counteract this and work towards paying off your debt, you can start creating a detailed monthly budget. Start by writing out how much you make each month, and then how much you have to spend on your bills like your rent or mortgage, gas, and electric bills. After that, you can factor in what the minimum balance on each of your debt accounts is and determine how much money you’ll be able to dedicate to paying down your debt past those minimum payments.
Make sure to also budget for the “fun” things in life, like going out to eat or seeing movies. If you don’t budget for any entertainment or fun, you may end up doing those things anyways and throw off your monthly budget. It’s better to just cut back on fun things than to completely cut them out of your life.
6. Consider a Side Hustle
One way to pay off your debt faster is to have more income. This, obviously, isn’t as easy as it sounds in some cases, but if it’s possible for you to get a part-time job or work odd jobs, it’s a great way to work on your debt. If you have a crafty hobby, like knitting or creating art, you can consider selling your wares online or at craft fairs to help make a little bit of extra money to help with your debt.
7. Do Extra Payments
In your monthly budget, you’ll have a certain amount that you’re planning to put towards paying down your debt. However, if you find that you have extra money at the end of the month, you should consider adding in a second payment to whatever debt account you’re focusing on paying off. Whether that extra money happens because you didn’t end up going out to eat as much as you thought you would or because you worked an extra side job during the month, you can make an additional payment to your normal one to help get your debt paid off sooner.
Although debt can be very overwhelming, you can eventually pay it down if you put thought and effort into thinking through your budgeting and payments.
