Are you having trouble paying your bills? You’re not alone. Americans of all ages and income levels can find themselves in debt. Sometimes it’s from splurging on a vacation or clothing. Other times, it’s from an unexpected home repair or medical expense. Either way, that debt can hurt your credit score, negatively affect your financial plan and lead to stress. It also costs you money in the form of interest – interest that can make the item you purchased much more expensive.
According to a survey conducted by insurance company Northwestern Mutual last year, personal debt continues to mount. Although most Americans (53 percent) cited debt reduction as their top financial priority, average personal debt (not including mortgages) climbed last year, with the average personal debt surging to $38,000. Two in 10 Americans allocate a staggering 50 to 100 percent of their monthly income to debt repayment, while one in 10 expect to be in debt for the rest of their lives.
It is possible to get out of debt, although it requires financial discipline. Here are five tips to help dig your way out.
Create a budget. This will help you plan how to spend your money each month – and avoid spending more than you earn.
Organize your debts. Make a list of all your creditors, the amount owed, the monthly payment and interest rate. Determine which debts have the highest interest rates and minimum monthly payments.
Prioritize your payments. Pay the minimum amount on all debts except for the one with the highest interest rate. On that one, pay as much as you can afford. That will help you pay down the debt with the highest rate first.
Consider consolidating your debts. Look into combining your debts into a single loan. Credit cards typically carry a high interest rate, but there are personal loans available that may lower that rate. Plus, you’ll have one monthly payment to make, rather than many. Of course, it’s essential to not build up balances on those credit cards again if you take this route.
Seek professional help. Consult an accountant, financial planner or, if necessary, a credit counseling firm. These experts will not only help you create a plan to reduce your debt but will also educate you on how to run your financial life in a more responsible manner.