Whether you’re drowning in debt or just starting to feel the tide turning on your finances, you’re not alone. The average American household now carries an average debt of $145,000. That’s almost triple what the average US household owed back in 2000.
Sure, the median household income has increased from $35,000 to $79,900 during that time. But many Americans have seen their debt-to-income ratio grow beyond their expectations as they struggle to get out of debt.
If you’re among them, there is a way out. While it may not be easy, a debt-free future doesn’t have to be an impossible dream.
Want to know fast and effective ways to clear your debts? Keep reading to learn more!
1. Track Your Spending
Repaying debt is a lot easier when you know where your money is going. Track your outgoings for at least a month to get a clearer picture of your spending habits. Doing this can give you some real and often surprising insight into where you’re spending more than you should. And, it’ll be a lot easier to identify where you could cut back as a way to free up some extra income.
2. Pay More Than the Minimum
Only repaying the minimum on home loans, overdrafts, and credit card debt each month is a recipe for disaster. Most of your repayment will go toward covering the interest you owe rather than reducing the actual debt itself. As a result, repaying your debts will take forever and you’ll constantly be struggling to get a handle on your finances.
Instead, aim to pay at least an extra $50 or so above the minimum each month. This will help speed up the repayment process and give you a little breathing room in your budget.
3. Clear the Biggest Debt First
One of the smartest tactics to become debt-free is to focus all your extra payments on paying off the debt that’s charging you the most interest. While this does mean only making the minimum payments on your other debts, it’s an effective way to make real progress and get out of debt fast.
4. Cut Your Spending
Cutting your outgoings is often easier than trying to increase your incomings. But first, you need to take a long, hard look at how to cut back.
Making a budget for non-essential purchases is a good way to start spending less, as is switching to cash. Not only will you bypass the extra charges that come with credit, but you’ll also spend less money and value whatever you buy with cash more so it’s a win-win situation!
5. Ditch Your Credit Cards
Credit card debt will only mount up if you continue with a “buy now, pay later” mentality. We’re not suggesting you wait and save up to buy your next home or car, but nor can you have everything you want right now. To avoid accumulating more debt, only carry debit cards and cash with you.
As for online shopping, delete stored credit card information to avoid charging items you don’t need in the future. And with recurring services like subscription fees, switch to a debit card to avoid yet more credit card debt.
6. Take Advantage of Balance Transfers
A risky yet effective way of repaying debt is to move your debt to a card with a zero-interest balance transfer. These offers usually come with a deadline so only opt for this if you’re sure you can pay off the debt before the balance transfer expires. If you don’t you’ll be hit with a much higher rate, but you can save hundreds of dollars on interest if you play your cards right.
7. Get a Consolidation Loan
Many banks offer consolidation loans that help you combine various consumer debts into one, lower-interest loan. Although consolidation loans can be a great way of getting yourself out of debt, they only work as part of a budget that allows you to save money each month.
Without savings, you’ll likely rack up more credit card debt when unplanned expenses crop up. As such, consolidation loans are best avoided if you struggle with budgeting and living within your means.
8. Spend Smarter
Getting out of debt is a lot easier when you’re smarter with the money you have. Ways to spend less on groceries include buying non-perishable items in bulk, collecting coupons, and batch cooking.
You should also take a look at how to cut back on your utility bills by airdrying clothes, installing blackout blinds, and using energy-saving lightbulbs. The same goes for other expenses such as car insurance, streaming services, and gym subscriptions. Leave no stone unturned when looking for ways to save money by shopping around for reduced tariffs and other ways to cut down.
9. Work a Second Job
No matter how much you tighten your budget, sometimes there just isn’t enough money coming into the house to get you out of debt anytime soon. For many people, getting a second job or pulling extra shifts is a solution to cover the shortfall. Although, unless you plan on working like this on a permanent basis, all your extra income should go toward repaying debt.
10. Generate Passive Income
One of the smartest ways to get your money to work harder for you is to generate passive income, i.e. making money while doing almost nothing. Some ways to do this include hosting international students, renting out your garage as storage space, selling unwanted belongings, advertising with your car, or renting your backyard to beekeepers.
11. Wipe Out Old Debt
Do you have an old credit card debt dating back years? You may be able to forgo repaying this debt without any legal repercussions if the statute of limitations has passed on it. To check, contact your state’s Attorney General to find out more about your state’s rules about this possibility.
12. Refinance Your Mortgage
Consolidating all your debts into your mortgage can be an option if you’re a homeowner with enough equity. But, before you rush into anything, make sure to seek advice from an unbiased source, such as an accredited credit counselor. They’ll help you assess your finances and check whether this is the best course of action.
Simple Ways to Get Out of Debt
A secure financial future doesn’t have to feel out of reach with these solutions to help you get out of debt.
From strategic moves to basic belt-tightening tactics, trying at least one or two of these methods is sure to pay off when it comes to paying off your debts!
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