Start Today to Reduce Your Debt
Follow this step-by-step plan to help free yourself from debt and create a brighter financial future.
The average American household carries $137,063 in debt, according to the Federal Reserve1, and “never getting out of debt” is the number one financial fear - just behind “always living paycheck-to-paycheck - according to one survey2. Debt can be crushing, not only to the bank account, but to one's mental health. There are few things as stressful as feeling the weight of financial burden. Relief can come, however, if you put together a debt reduction plan and execute it. These steps can help you do just that.
Review What Led to Your Debt
Start by reviewing what got you into your situation in the first place. Look back through your transactions and consider which ones weren't necessary, to get a good idea of how you can trim expenses going forward. Are you making recurring payments for services that you don't need? Do you spend money on impulse items at the grocery store or expensive evenings out? How about that daily trip to the gourmet coffee shop when free coffee is available in your office’s breakroom? These are good places to begin trimming your spending habits.
Review the Debt That You Have
Add up all the debt you have and note each creditor that you owe money to. Get all your financial information together and check out your credit report.
"This is an important step toward debt recovery, but one that people are often scared to take," says Credit.com.3 "On a piece of paper, write down the balance, interest rate and monthly amount due for each of your debts. Include your auto loans, personal loans, payday loans, credit cards and other debts. You should also make note of any annual fees on your credit cards."
Review Your Budget and Spending
Take a look at your budget and figure out what changes you can make to save money. If you don't have a budget, now is the time to create one. Start by adding up all your income as well as all of your expenses, not counting your debt. Then figure out what's left and how that can be put toward the debt you owe. It's time to get serious about cutting out unneeded spending, at least until you get your debt under control. The longer you go in debt, the harder it's going to be to dig yourself out.
Assess What You Can Afford to Pay
Once you've figured out how much debt you have and work out a budget, you'll be able to assess how much you can afford to pay - both up front and on a monthly basis. If you find that you’re unable to make a dent in your debt load as it’s currently structured, it may be time to...
Call each creditor and let them know that you want to work on paying down your debt, but that you can't afford to pay it all off immediately. Most will want to work out a new payment plan with you, and in fact, some may even be willing to lower the amount that you owe them as long as you can show that you are serious about paying off the debt. This, of course, will require at least some payment.
Figure Out What to Pay First
While you'll want to make regular payments to all your creditors, you can figure out which debt you should pay off first, and put more focus on that. Make bigger payments on this as you are able, and once you get that paid off, you can move on to the next one in line.
From here on out, making payments regularly and on time should be a major priority. If you get behind, you'll start racking up late fees, which will only add to your debt and sabotage your plan.
Keep track of all your payments so you can hold yourself accountable and track your progress as you make it. Nothing is more motivating than seeing a light at the end of the tunnel, and you'll only see that light if you pay attention.
Consider Other Alternatives
One option to keep in mind is to apply for a loan that will enable you to pay off your debt and consolidate it into one monthly payment. Your banker will be happy to sit down with you, discuss your options, and see if a bill consolidation loan would work for you.
Don't Let History Repeat Itself
Finally, don't let history repeat itself by falling into the same bad spending habits that got you into debt to begin with. When you consider making an unneeded purchase, remind yourself how difficult things were when you were consumed by debt. Spend responsibly.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of Zions Bancorporation, N.A. Member FDIC