How to Pay Off Your Debt

With the economy slowly picking back up, more people are spending their money because they are more confident in the economy and their financial choices. For some people, more spending equals more debt. According to a CardHub study, the average American household now holds about $7,126 in credit card debt.

If your credit card debt has become unsustainable, you may find this information helpful. A recent article on the Equifax Finance Blog, “Four Important Steps Toward Paying Off Credit Card Debt,” presents everyday steps that might help you better control your finances and manage your budget:

1. Access your current situation.

The first step to gaining financial freedom from your debt is to figure out exactly where your finances stand. You can start by collecting financial documents, bills and credit reports. Then, make a list that includes all your debts and balances, your monthly payments and the interest rates for each account. If you have student loans, auto loans or credit cards, these should all be included in your list.

2. Know your savings potential.

After you’ve seen what all your debts are, it’s time to figure out how to get rid of them. First, evaluate your monthly budget and subtract from your income your fixed daily living costs, such as rent, utilities, insurance, childcare, commuting costs and groceries. Once you figure out how much your fixed costs are, you’ll be able to evaluate how much you can put toward paying off your debt quicker.

3. Devise a plan.

There are many ways to approach debt, including these three strategies:

  • The “snowball” strategy. This strategy involves paying the debt with the smallest balance first. Focus all of your allotted debt payment money on this goal until you have paid it off, and then move on to the next largest debt.
  • High-interest debt. With this strategy, start by paying the debts that carry the highest interest rate first. Your highest-interest debts will cost you more the longer that you take to pay them. This strategy is most suitable if you carry debts with interest rates that are above 5 percent.
  • Extra income for a specific debt. You may find that your budget doesn’t allow for a substantial debt payment each month. In this case, you may want to take on a second job or look for other ways of income. However, for this strategy to work, you should commit to dedicating all of your income from the additional job toward your debt.

4. Negotiate fixed costs.

If your biggest debt issue is your credit card spending, you may be able to negotiate with your creditors to get a lower interest or create a more reasonable payment plan. Also, refinancing your mortgage or automating your student loan payments may lower your interest rate.

Getting out of debt won’t happen overnight. It takes hard work and dedication to find your financial freedom. Follow this financial advice, and start eliminating your debt today by making a plan and sticking to it.