Whether you have accrued debt from student loans, credit cards, or other means, getting out of debt can take decades of hard work. High interest rates, unexpected expenses, and low earnings can all contribute to mounting debt. Fortunately, there are some approaches that borrowers can take to minimize their debt over time. If you have recently decided to redouble your efforts and focus on reducing debt, there are a few strategies to help you determine which debts to tackle and when.
Slow Your Spending
One of the first steps, no matter which strategy you use, is to curb your spending. For folks with massive amounts of credit card debt, keeping up with your current spending habits may seem like a drop in the bucket compared to your total balance due. However, adhering to a more strict budget and cutting unnecessary spending is a crucial first step to reducing debt. While excessive spending is not always the root cause of debt (especially in cases where medical debt, student loans, or home loans are the main issue), sticking to a conservative budget can help prevent debt from ballooning.
Reducing Debt: Snowball vs. Avalanche Method
Two popular strategies for reducing debt are the debt snowball and avalanche methods. In the snowball method, you continue paying minimums on all of your debt while putting the rest of your funds toward paying off your smallest loans first. Once a small loan is paid off, you switch focus to the next smallest loan. With the avalanche method, you take a different approach. Rather than paying off your smallest balance first, you focus on the debt with the highest interest rate. This can help you avoid paying massive amounts of interest and can save time and money in the long run.
Debt Consolidation and Management Plans
Debt consolidation is another approach that some people use to lower their interest rates and make debt easier to manage. There are a few ways that borrowers can consolidate debt, and working with a credit counselor or financial advisor can help you decide which option is right for you. Debt management plans are another way that a professional credit counselor can help. These plans often involve setting up a repayment plan with a lower interest rate. As always, financial education is a key aspect of reducing debt, so be sure to learn everything you can about interest rates, repayment strategies, and consolidation before you commit.
Take Control of Your Finances with EveryIncome
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