5 Tips to Help Reduce Your Debt

Start by Assessing Your Situation
The first step is to know where you stand today. Gather your various monthly loan statements. List your debt totals (how much you owe on each debt) and what interest rate you are paying and what your minimum monthly payments are on each one.

Once you have a clear picture of your debts and how much you’re paying each month, you can create a plan to tackle them. (If you don’t already have a monthly budget, you may want to write one of those as well, so you’ll know how debt fits into your overall spending and saving.)

Consolidate Your Debts
One way to pay down your debts is to consolidate several of them into an easy-to-manage single loan. And if you can get a lower interest rate on this one debt than some of your individual debts, that’s an instant win. There are a couple of primary ways to consolidate debt, assuming you have a good enough credit score to qualify:

●    Open a 0% balance-transfer credit card: Transfer all your debts onto a single credit card and plan to pay the balance in full, or a significant chunk of it, within the no-interest promotional period (typically 12–18 months, but be sure to read the terms of the card agreement). Do your best to wipe your slate clean before the interest rate goes back to the going rate, which could be as high as 25%. If you have a manageable amount to pay off and are disciplined, this could be a great strategy with a big payoff. 

●    Take out a fixed-rate debt-consolidation loan: Apply the amount of money from the loan to pay off your various existing debts. You can then pay back the personal loan to the lender with regular monthly payments over an agreed-upon term. For instance, if your total amount owed on several credit cards or personal loans is $15,000, you’ll now have a fixed-rate loan of $15,000 for a set term. Based on paying a hypothetical 5% interest rate over five years, you’d owe about $280 monthly for 60 months.

Use the Snowball or Avalanche Payment Method
Another way to get your debts under control is to pay them off one at a time. There are two popular methods—the debt avalanche and the debt snowball—and one or the other may work best for your situation and goals.

What is a debt avalanche? For many people, the way to save the most money may be to pay off the highest-interest-rate debt first, because that’s the one that’s costing you the most in interest charges. If this is the plan, pay off the minimum monthly payment amount on all other debt while putting every additional available dollar toward the card or loan with the highest interest rate. As soon as you’ve paid it off, go to the next highest-interest-rate debt and so on.

What is a debt snowball? Focus first on your smallest debt and once you pay it off, you move to the next smallest. You’ll pay more in interest rates over time than with the avalanche method, but the advantage is that you might be more motivated to keep going once you pay off your smallest debt and then see the snowball effect in action.

Either way, celebrate your wins (like treating yourself to a bottle of wine) as you make progress, one debt at a time. 

Avoid Overusing Credit
Keep spending in check and focus on budgeting. Using these debt payment approaches can be a great way to help you climb out from a mountain of debt, but you also need to ensure you won’t fall back into a similar situation in the future.

To get a better handle on your spending, create a budget that you can follow and monitor your credit card balance. Separate your needs from your wants and make sure you don’t spend more than you earn. If you can stash away some money in an emergency fund, you’ll be able to tap those funds the next time an unforeseen expense, such as a large medical bill, pops up.
 

Manage Your Credit Card Well
Credit cards are a great tool that can help you achieve your goals, but you should use them strategically and within your overall budget. If you’re disciplined and charge no more than you’re able to pay, you’ll benefit from an interest-free loan from the time you make each purchase until your monthly payment is due. And by using the card and paying off the balance, you’ll improve your credit history.

You could also receive cash-back rewards on each purchase along with fraud and purchase protection. Some people use credit cards as an easy way to track their spending so they can manage their money more effectively. If needed, credit counseling is also available to help you create better spending habits.