Collectively, we are a nation that owes a whole lot of money.
The average American carries more than $38,000 in debt each month, according to a survey by Northwestern Mutual. Climbing out of debt and repairing your financial health can be daunting, but here are a few strategies to help you achieve your goal within three years.
To get yourself out of debt, you must first know how much debt you have. Look at your credit cards and loan statements to see how much you owe.
You can request one free report every 12 months. Once you get those reports, you can ensure that everything is accurate and all recorded debts have been identified.
You should also look at your credit score. You might be eligible for lower interest rates or a debt consolidation loan.
Income Vs. Debt
Once you have information, you can start to investigate how much you make in a month and how much you spend in a month. Make a list of all your debts, and include the interest rate, minimum monthly payment and balance.
Lower Your Interest Rates
The more you owe, the more you are spending each month on interest rates, and then you owe more the following month. This might make it seem like you are fighting an uphill battle, but there are ways around this.
If you are finding yourself with more loans and debt with high-interest rates, there are a few things you can do.
- Find a credit card with a lower interest rate. Explore cards that have a lower interest rate than your current one. Some cards even have an introductory zero interest rate for a year, helping you to catch up on some of your debts.
- Negotiate a lower rate on your loans. Call the loan provider and try to refinance your loan.
- Consolidate student loans. Research at StudentLoans.gov to see if you can consolidate your student loans.
Start With The Smallest Debt First
It might seem like it makes more sense to start with the bills that have the highest interest rates first, but you should consider the “snowball” method.
In this way, you pay for your bills one by one. You still make the minimum payments on all your debts, but you put as much money as you can in your smallest debt until it is paid off.
You start to build momentum, and slowly but surely, you have one less payment, and within three years, you could be debt-free.
Most importantly, start spending less. Try to spend your income on only the essentials, and leave a small budget for fun. Making a budget and sticking to it without getting discouraged will be the most effective way possible.
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