Fighting debt requires a two-pronged approach. You want to pay off the debt that you currently have, and you also want to avoid falling back into the same situation in the future. The tips below can help you accomplish both.
Organize Your Debts
It’s not uncommon for those who are in debt to avoid knowing exactly how much owed because it can feel overwhelming. However, you do need to start by looking at this, figuring out what your minimum monthly payment is for each debt, and choosing the order in which you’ll concentrate on paying off what you owe. Focusing on one debt at a time and simply paying the minimum on the others allows you to focus on either the smallest one or the one with the highest interest rate. In the former case, paying it off can feel like a motivational victory while in the latter case, you’ll save money in the long run.
Reduce Your Interest
Even if you’ve decided to focus on the debt that has the highest interest rate, it’s a good idea to try to reduce the interest of various debts as much as possible. If you have a student loan, you might be able to refinance it. One option for credit card debt is taking out a personal loan with a lower interest rate and using that to rid the lingering balance of credit card debt. You can then pay off the loan without accumulating as much interest as you would have on the credit card. You can review a guide that explains this in more detail to help you decide if this strategy would work for you.
Build Emergency Savings
One of the steps you need to take to prevent going back into debt is building up your emergency savings. This needs to be easily accessible, so think savings account or perhaps a money market account as opposed to locking it into a retirement account or something similar. Eventually, you should have enough in this account to cover several months of basic expenses but start with a goal of just a few hundred dollars. Even this will make a difference. When you encounter unexpected expenses, such as a car repair, you won’t have to put it on your credit card.
Change Your Spending Habits
Some are in debt solely because of an emergency, such as job loss or medical bills. However, if you are like many, you may need to change your everyday spending habits as well to avoid falling back into the same situation. This might involve tracking your spending for a little while and making a budget so that you know exactly how much money you have for various things. You may also need to start saving up for the things that you want rather than buying them on credit. You may need to change some of your regular pastimes as well. If shopping online or offline is a hobby, you need to figure out whether to cut back on that or how you can continue to do it while spending less.