A Love Letter to ‘Crossroads,’ 20 Years Later A 2021 report found that the average American has $90,460 in debt . Between paying off college loans and tackling the financial impact of unplanned emergencies, lingering medical bills, personal loans, credit-card balances, mortgage payments, and beyond, many people are financially stressed. And accruing debt can be both financially and emotionally draining.
“Not only are you unable to do all the things you’d like to do with your own money, but it can also have a serious impact on your long-term health and relationships,” explains Nick Holeman, a certified financial planner and the director of financial planning at Betterment . Freeing up this income, he says, can make your life better in many ways — and allows you to spend your money in the manner that you choose.
While it may seem hopeless watching the bills pile in and the interest build up, there is a light at the end of the tunnel. With a little discipline and a plan in place, paying off your debt is entirely possible. Here are some expert-backed tips on how — and where — to begin: Take inventory of your situation
“Start by listing all of your debts, including the creditor’s name, contact information, most current balances, and the interest rates,” says Sharita Humphrey , a certified financial education instructor and Self Financial spokesperson.
Next, spend some time analyzing the reasons why you got into debt in the first place. This, says Kristin Stones, an online money mentor and the owner-founder of Cents + Purpose , is an often-overlooked step in getting out of debt. “If you find that a lack of financial literacy and money-management skills or poor spending habits contributed to your current financial position, it’s important to address those factors while you’re working to pay off your debt,” she says. Neglecting to do this and focusing solely on paying off balances will likely lead you back to a place of debt in the future. “Being honest with yourself about specific behaviors that may have had a negative effect on your finances will allow you to create a plan to create new, healthier habits and mindsets that will put you back in control of your money,” says Stones. Create a budget
Go through your income and expenses, and figure out how much you can afford to pay toward your debt each month. “Reduce or pause any unnecessary spending or expenses because this will put more money back into your household budget and allow you to have more money to pay off your small debts,” suggests Humphrey.
Shawn Plummer, the CEO of the Annuity Expert , suggests tracking your spending for a month and categorizing it into areas like transportation, groceries, eating out, and bills. “Once you understand where you’re spending your money, you can start to identify areas where you can cut back on your spending,” he explains. For instance, consider pulling back on ordering takeout, getting a new phone if you can use yours a little longer, or buying something new versus borrowing it or getting it free from your local Buy Nothing group. Once you understand where you’re spending your money, you can start to identify areas where you can cut back on your spending. Make your minimum payments on time
To the best of your ability, always make at least your minimum debt payments on time. “Not keeping up with minimum payments will hurt your credit score and can load you with extra penalties, interest, and fees,” says Holeman. He suggests setting up automatic payments to ensure you never forget to keep track of due dates. Prioritize high-interest debt
“For most people, the most expensive debt is associated with credit-card or unsubsidized student-loan debt,” says Holeman. Thus, that can be a great place to start. His firm considers any debt with an interest rate greater than 5 percent to be high interest. This method is referred to as the “avalanche method.” “A person would pay the minimums on all of the lower interest rate or lower balance debt and tackle the highest first,” explains Kevin Chancellor, a financial adviser with JAG Financial Services .
This strategy, says Chancellor, has the potential to save you money on interest-rate charges over time but can be the hardest to commit to because you aren’t seeing the balances being paid off as quickly from the beginning. “As you are working your way down, you are taking the payment from the previous paid-off debt and adding […]
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