Americans routinely cite paying down debt as a top priority in their financial planning. It’s a great advantage for today’s young adults to start paying off as much debt as they can and begin their working life with as little as possible. With American households carrying an average of more than $10,000 in credit card debt, resolving to pay down debt is certainly a worthwhile goal.
The first step in digging out of debt is to take a good look at your total debt levels, spending habits, and plan for payoff. The experts at Money Management International (MMI) offer the following tips to help you get started on the path to debt freedom:
- Stop using credit. The first thing you should do is quit charging on your credit cards and start living on a cash basis. If you choose to use credit, have a solid plan in place to pay the balance in full.
- Assess your debt. Gather all of your statements and find out whom you owe, how much you owe, and the interest rate you are paying.
- Create a payment plan. Either concentrate on paying off the debt with the smallest balance first (never forgetting to make required payments to all debts), then tackle the next smallest balance or concentrate on repaying the debt with the highest interest rate. Regardless of the method you choose, be patient and persistent.
- Adjust your spending. Make a conscious effort to know the difference between needs and wants. Review non-essentials and try to cut back wherever possible.
- Research your available resources. Examine ways to increase income and decrease expenses. Consider selling non-essential assets or find additional work. Reserve all extra income for debt repayment.
- Contact your creditors. Some creditors may have special options for paying down debt. They may agree to reduce your interest rate for a period of time or offer a special payment plan to help you payoff sooner.
- Get help. Trained experts, like those at MMI, can help by reviewing your budget and spending plan, and offer a Debt Management Plan (DMP) that is designed to help you become debt free.
Finally, once you have reached your goal, establish an emergency savings account to protect you from future setbacks. Practice your new habits each day to ensure that you are improving your financial standing today and into the future.