If you are deep in debt and don’t know how you will ever manage to pay it off, you are not alone. According to a NerdWallet analysis in 2016 the average American household had almost $17,000 in credit card debt alone. The path to financial freedom starts when you find a way to make a dent in your debt by paying more than the minimum amount on your bills. Here are some tips from the experts to help you get started.
- Create a Budget
One of the first steps to solving a debt problem is to create a budget that includes your monthly income and expenditure. Scrutinize the list to see where you can cut costs. Sort your debt from the highest to the lowest interest and pay off the debt with the highest interest rate first. Increase your monthly payment on the most expensive debt first while maintaining minimum payments on the rest. Then tackle the second most expensive debt and keep going until they are all paid off.
- Pay More than the Minimum Balance on your Credit Card
Make a commitment to make weekly payments instead of monthly payments. If you can afford it, try to pay double the minimum amount for a few months and see the difference it makes. For the foreseeable future put work bonuses towards paying off your debt and put off going on a luxury vacation for a while. Sell unwanted gifts and other items and use the cash to reduce your debt.
Your credit card company records whether you make minimum payments or bigger amounts. Unless you are not on a 0% plan, paying only the minimum amount could be damaging your credit rating, and future potential lenders will be less likely to deal with you or offer you a competitive rate.
- Switch from a High-Interest Credit Card to a 0% Balance Transfer Card
If you are confident that you can pay off the balance on your credit card within a few months, take advantage of a 0% balance transfer. If you plan it carefully you can save hundreds of dollars on interest, but you must cancel the full debt before the zero balance transfer expires or you will be charged a much higher interest rate. The best deals currently on offer are 28 months at zero interest.
- Halt your Credit Card Spending and Reject Interest Rate Hikes
Stop using your credit card until you have your finances under control. If your credit card company announces an increase in your interest rate you have sixty days to reject it. Your spending will be suspended but you will be able to repay the balance owing at the lower rate. Delete your credit card information from the online stores you frequently visit and instead use a debit card linked to your checking account to pay for recurring services. It is more important to be debt-free than owning the latest fashion handbag.
- Join Your Local Credit Union
Credit Union loans are cheaper than other loan providers for smaller amounts with no administration costs, early redemption fees, or set-up fees.
- Consolidate your Outstanding Debt with a Personal Loan
A Best Rate Personal Loan generally charges a lower APR and provides you with certainty over your monthly payment and the period you will need to clear your debt. Avoid Consolidation Loans as they charge a much higher interest rate and spreads repayments over a very long period and sometimes they require the loan to be secured against your home. They are only worth looking into if they charge considerably less than your current borrowing rate according to this site.
- Change your Habits
Daily habits and routines are one of the major reasons why people get into trouble with debt. Think about how you spend your money on a daily, weekly, and monthly basis and see where you can change your habits without sacrificing your lifestyle too much. For example, cut down on the number of lattes you have a day and take a packed lunch to work instead of eating out.
- Reward Yourself
Every time you reach a milestone reward yourself as you will be much more motivated to pay off your debts if you don’t see it as punishment or deprivation. Just be careful to keep the rewards within reason. Large milestones that are reached in a short period of time deserves more than a mere pat on the back to keep you motivated.