5 Ways to Take Control of Your Debt

Think about your debt.

Did your heart start racing? Palms get sweaty? That’s completely normal. Financial issues are the top stressor for Americans, according to the American Psychological Association—and debt can be one of the biggest culprits for causing money stress.

But out-of-control debt doesn’t have to control your finances. A recent Student Loan Hero survey found that paying down debts is the most common financial New Year’s resolution.

Though your debts might feel bigger than you, they’re not. You have the power to cut your debts down to size and manage them more effectively. Here’s how to start working toward a $0 balance:

Maybe you’ve heard of a debt snowball or a debt avalanche before. This is a smart strategy that helps you tackle multiple debts at once in the most effective way.

With a debt avalanche, you order your debts from the balance with the highest interest rate to the lowest. You then make the minimum payments on each debt, and you also budget to make an extra monthly payment on the debt with the highest interest rate. Once you pay that debt off, you roll what you were paying toward it, including the extra, over to paying down the debt with the next-highest interest rate. Rinse and repeat until you’re debt-free.

The debt snowball is a slight variation on this take. Instead of paying the debt with the highest interest rate, you start with the lowest balance. That way, you can get rid of that debt faster and see your efforts pay off. It can be an easy win that will keep you motivated to stick with your strategy to get debt-free.

Try the debt snowball or debt avalanche, whichever you think would work better for you. Then start knocking down your balances.

As you’re working on your get-out-of-debt plan, it can be helpful to see what these plans would look like in action.

Using an online calculator can help you see how paying say, $100 vs. $500 extra a month would affect your debts. How much sooner would you get out of debt? How much would you save in interest? A calculator can easily answer those questions, and seeing the projections can be really motivating.

Start with a debt prepayment calculator to see how much extra payments could save you. You can also use a refinancing calculator to see what you could save with a lower interest rate. And if you’re using the debt avalanche or snowball strategy, unbury.meis a great tool to see the different repayment scenarios, as well.

If you still feel like you need more control over your debts, consider restructuring them altogether. Refinancing or consolidating your debts gives you more control to choose how you repay them. It gives you options like resetting monthly payments or changing how many years you’ll be repaying.

If student loans are plaguing you, for instance, refinancing has the potential to make that debt cheaper and more manageable. By refinancing student loans, you get a new private student loan that replaces your existing loan. And with a new loan, you have the chance to lock in a lower student loan rate. Make sure to do your research and choose from the best banks to refinance student loans to maximize your savings.

For credit cards, personal loans, or other forms of consumer debt, consolidating with a personal loan can also be a smart option. Personal loans often carry lower interest rates, so the potential for savings is definitely there. Compare your options and you might find a debt consolidation option that will make your debts more manageable and affordable.

In addition to consolidating credit card debt, a balance transfer is also an option. This means you use a credit card with a lower interest rate to pay off other credit card balances with higher rates. Doing this can get your credit card debt on a lower-interest card, so you’re paying less each month.

To optimize your savings with this strategy, transfer a balance to a credit card with a 0% interest rate. Many credit card issuers offer a 0% APR introductory interest rate for up to the first year after you open the card. That gives you up to 12 months of debt payments that go straight to the principal instead of wasting money on interest.

You might need a decent credit score to qualify for these new credit card offers. Watch out for balance transfer fees and annual fees, too, as these can offset your interest savings if you’re not careful.

The bottom line of debt is that to get ahead, you’re going to have to pay more than the minimum each month. But to pay extra money, you’ll need extra money in your budget. Or, you can pick up a side job to earn more cash to put toward paying down debts.

Whatever your skill set or time limits, if you think creatively, you can identify a money-generating opportunity to match. Then put this new cash flow toward your debt and watch your balances drop even faster.

Getting control of your debt is a wise move to make, but don’t feel like you need to take all of these actions at once. Getting out of debt is a marathon, not a sprint.

Just start with one strategy, and take one step at a time. Small but steady changes will help you build the momentum you need to pay down your debts faster.

Post by: Elyssa Kirkham

Elyssa Kirkham is an expert on student loans, personal loans, debt and credit. She writes for Student Loan Hero, a company that helps 100,000+ borrowers manage and eliminate over $2 billion dollars in student loan debt. Users can compare refinancing lenders, use calculators to review repayment options, and find helpful tips on a variety of personal finance topics.

Company: Student Loan Hero
Website: www.studentloanhero.com
Connect with me on Twitter and LinkedIn.

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