Reducing debt takes willpower.
Google the phrase “getting out of debt” and you’ll get more than 257 million hits. That isn’t the least bit surprising given the fact that almost every one of us has had to find ways to change our spending habits over the last several years. You’ll find tips for reducing your debt on sites that range from Dave Ramsey, to Oprah Winfrey. They offer suggestions that run the gamut – from paying off your highest interest loans or credit cards first (to save more interest) to paying off your smallest debts first (to gain momentum).
Regardless of the method you choose to get your debt under control, one thing is for sure: you can’t dig yourself out of debt until you are spending less than you are bringing in. So that’s the first tip. Here are a few more we think are particularly helpful:
- Identify non-essential spending and eliminate it until you get your debt under control. Until you really, really track what you are spending, it’s hard to realize that you may be spending way more than you think on things that you don’t need. That one cup of coffee on the way to work in the morning, a lunch or two out a week: these things can add up in a big way.
- Establish a budget. If you’ve already started tracking your spending to look for non-essential items, you’re on a roll. Continue on by identifying all of your sources of income and all of your expenses and then establishing a “balanced budget.” (Deficit spending isn’t a habit the government wants to be in and it doesn’t work well for individuals either!)
- Pay your bills on time. Sounds sensible enough but it isn’t always that easy. However, late fees can really pile up, adding to your debt.
- Pay off high interest credit cards and keep only a few, low interest cards. Credit cards aren’t “evil.” When used properly, they are extremely convenient. Many offer rewards points and have low rates and fees. Just be sure to shop around and to read all of the fine print to be sure you are getting a competitive deal.
- Consider consolidating your debt. If you have a lot of debt, a debt consolidation loan can be a great way to help you pull everything together into a single, affordable payment. And you may find that you can actually reduce your overall interest payments in the process, particularly if you can consolidate with a home equity loan, which typically offers very competitive interest rates.
- If you don’t already have one, start an emergency fund and then don’t touch it unless you truly have an emergency.
- Finally, be realistic. If you’ve been accumulating debt for many years, it isn’t realistic to think you’ll be able to get out of debt quickly.