If you’re one of the many Americans struggling to manage debt, you aren’t alone. Prices and interest rates alike are high, and it can feel difficult to get out from under payments. Whether you are paying off credit cards, student loans or other kinds of debt, figuring out a plan can cause immense money stress.
Paying off debt isn’t impossible though, even when funds are tight. Budgeting carefully, making strategic payments and negotiating terms are all strategies you can employ to pay off your debts faster.
Read on for six tips from experts on the simplest strategies for paying what you owe.
1. Start With a Budget
The first step to paying off debt should always be to address your budget. Having a good idea of your money in and money out can help you identify why you accrued debt in the first place, make a plan to stop accruing more and figure out where you might be able to make room to redirect funds to payments.
“To prioritize debt payments, it is important to create a budget and cut unnecessary expenses to free up more money for these payments, as you will never be able to pay off debt if you’re not organized about it,” Michael Collins, chartered financial analyst and founder and CEO of WinCap Financial, said in an email.
2. Curb Extraneous Spending
With a realistic budget in hand, you can identify areas of spending where you might have room to trim. Categorize your purchases into wants and needs and start cutting money allocated to wants.
While it’s important to leave some room for joy in your budget, you want to avoid staying in debt for extraneous spending.
[Read: Inside the Psychology of Overspending and How to Stop.]
3. Prioritize High-Interest-Rate Debt
The most useful trick to pay off debt — known as the debt avalanche method — is to prioritize higher interest debts first while still making the minimum payment on all other debts. Since the high interest debts will cost more in the long run, you save money by paying them off as soon as possible.
4. Consider a Balance Transfer or Debt Consolidation
Credit card debt, in particular, can build up quickly and take a long time to pay off. That’s because interest rates on credit cards are very high, so cardholders making minimum payments on their bills will add high interest charges to their balances.
Luckily, balance transfer credit cards were designed with this exact problem in mind.
“A balance transfer involves transferring your existing credit card balance to a new credit card with a lower interest rate, which can be beneficial for those who are struggling to make payments on high-interest credit cards,” Collins said.
You’ll usually have to pay a transfer fee of 3% to 5% up front, but you can save more than that in interest over the 0% APR period, which can last for more than a year.
For other kinds of debt, you can also consider a debt consolidation loan.
“Debt consolidation involves combining multiple debts into one single loan or payment plan,” Collins said. “This can help individuals simplify their payments and possibly secure a lower interest rate, but it may also require collateral or have fees associated.”
[Related:What Is Debt Consolidation and How to Do It]
Debt consolidation loans might have associated interest and fees that balance transfer cards don’t, but you can consolidate other kinds of loans, like personal loans.
5. Negotiate Interest Rates and Payment Terms
You might think that you’re stuck with the interest rate your lender assigned you, but often that’s not the case.
“It is possible to negotiate with creditors to access lower interest rates or create payment plans that work with your budget,” Collins said.
Reach out to your lender and be honest about your financial situation. If you demonstrate that you’re making a clear effort to pay back what you owe, the lender might be willing to work with you by lowering your interest rate, adjusting your payment schedule and more.
6. Find Ways to Bring In More Cash
Debt accrues because there is more money going out than coming in. While strategic budgeting might help you to mitigate this issue, sometimes you need to generate more income to sustain your payments.
There are lots of easy ways to earn some quick cash, from selling old stuff to launching a side gig. You can also take on additional part-time work or ask for a raise at your current job.
No matter how you bring in the money, it’s important to find a balance between how much you earn and how much you spend — or not only will paying off debt be difficult, but you’ll keep building more of it.
[READ: 7 Things to Know Before Starting Your Side Hustle]
Don’t Get Overwhelmed by Debt
With high interest rates on credit cards and high prices caused by inflation, it might feel easy for your financial situation to get out of control. It’s important to keep a level head, make a plan for your budget and payments and be realistic about your finances.
“In order to avoid getting buried by debt in the first place, create a budget and stick to it, be mindful of credit card spending and have an emergency savings fund to avoid relying on credit cards for unexpected expenses,” Collins said.
More from U.S. News
This Is Why You Might Be Responsible For Paying Your Parents’ Medical Debts
8 Personal Finance Ratios You Should Be Tracking
7 Strategies to Get Out of Student Loan Debt
6 Easy Ways to Pay Off Debt originally appeared on usnews.com
Update 07/10/24: This story was published at an early date and has been updated with new information.
