Being in debt may sometimes seem overwhelming. However, it's important to take actionable steps to reduce it, not only for your peace of mind but also because your credit score may suffer if you have too much debt.
Here are 5 suggestions of simple ways to start tackling your debt:
1. Work on Debt with the Highest Interest Rate First
Many people struggle with consumer debt - especially credit card debt, which affects one-third of Americans, according to the National Foundation for Credit Counseling. The average household has a little more than $15,000 of credit card debt, government statistics reveal.
Most credit cards have double-digit interest rates, which means that, for every month that you don't pay the balance off in full, you're racking up some hefty fees.
It's often a good idea to start by tackling debt like this - with the highest interest rate - first. You can start doing this by paying more than the minimum amount due each billing cycle, which can help you get to a zero balance faster. By paying off high-interest debts first, you pay less interest over time.
2. Consider Transferring Debt or Consolidating
Americans tend to have three to four credit cards in their wallet, according to a 2014 Gallup survey. You may want to consider checking to see whether one of your credit card companies offers an introductory interest rate of 0% to customers who transfer their balance from one card to another.
This can be a good way to save on interest, but only if you will be able to pay off the debt before the introductory rate ends and a higher interest rate kicks in.
Another option is to take out a debt consolidation loan. A debt consolidation loan can be a good way to start paying off debt, especially if you have high interest rate debt from multiple sources. These loans may help you pay off these debts so that you have only one monthly bill to pay.
3. Identify Your Spending and Set a Budget
You can't stop the bleeding (albeit financial) if you don't know where the wound is. So take all of your bank statements, credit card statements, and ATM withdrawals, and create a spreadsheet of what you are actually spending each month. Figure in your income and your monthly costs - housing expenses, gas, water, taxes, groceries, etc.
Then create a budget that prioritizes spending on these essentials and reduces spending on non-essentials.
4. Stop Shopping
Shopping and buying can lead you into debt, so you may need to go cold turkey on non-essential spending if you are serious about getting out of debt.
A key step is to stop doing what I call "shopper-tainment" - shopping for entertainment. That means only spending money on essential items, like groceries.
While this strategy may not directly reduce your current debt, it could help prevent you from accumulating additional debt and allow you to funnel the money you would have spent into your debt pay off plan.
5. Find Extra Cash and Put It Towards Debt
How do you find extra cash? Well, it doesn't fall out of the sky, but it could be falling out of your wallet, like when you purchase a coffee at the coffee shop each morning or eat out for lunch because you didn't have time to pack a lunch. If your budget will allow it, take that "extra" money and put it towards paying down your debt.
You can also find extra cash by consigning some of your clothes or selling items that are cluttering your garage or attic. Finally, if you get a bonus at work or a tax refund, don't splurge - send it to your creditors. Every dime or dollar that you find can help you become debt-free faster.