Borrowing money on various occasions is a normal part of life for many people in the United States. When unexpected situations arise, or during financially tight times, we often turn to our credit cards. Unfortunately, debt can quickly grow if we do not closely monitor the charges and do not pay our credit card bills in full and on time each month.
The average household in the U.S. has a credit card debt of $15,480, according to the personal finance website NerdWallet. The average mortgage debt stands at $156,474, and student loans account for an additional $33,424. Many families face a debt so large that they think they’ll never be able to pay it back in full.
Many ways are available to help people manage their finances and pay back debt. This might require making some hard decisions, but eventually those decisions can pay off – literally.
Here are some tips to help address debt and move toward financial freedom:
1. Stop charging your purchases.
That’s obvious, but it can still be a hard pill to swallow. So cut up the credit cards and…
- Make tough choices. You may need to get the family on board as a team. Forgo big, unnecessary purchases and make an effort to stop spending on the little things, too. Make your own coffee, look into entertainment options that are cheaper than cable, rent movies instead of going to the theater, cook at home instead of eating out, and aim to reduce your cell phone bills. Think of these decisions not as depressing sacrifices but as empowering choices that can lead you toward freedom.
- Say no. If you have children, do not feel badly about saying “no” during financially difficult times. It’s actually an opportunity to teach your children about financial responsibility. For example, explain to your child the need to save his or her own money from an allowance, chores or job to pay for things that your child wants to buy. Teach your child to clip coupons and hunt for bargains at local discount or thrift stores. The quest to save money can be turned into a fun game that all family members can play and enjoy.
- Focus on the big picture. Your experiences in moving from debt to debt-free become a wise lesson from which your children can learn.
2. Pay down your debt strategically.
Choose a debt-reduction option: For a quick, empowering reward, pay off a smaller debt first, OR for a longer-term reward, tackle the loan with the highest interest rate first.
Whichever way you choose, stay current on all payments and pay whatever extra you can each month toward your targeted debt. Once you pay it off, add the same amount of monthly payment money to your payments for a second targeted debt.
If you struggle with making payments on time, perhaps a free online pay service could help, and perhaps your bank offers such a service. This method enables you to schedule regular monthly payments. When payments are scheduled in advance, you’ll be less prone to splurge on unnecessary expenses.
3. Sell stuff or a service.
Have a yard sale and locate consignment shops in your area, for selling your unwanted belongings. Additionally, use online marketplaces where people can buy or sell goods, such as Etsy, eBay and Craigslist. Here’s how to start:
- Clean out your family members’ closets. Gently worn shoes, clothes and outgrown items can all be good items to sell.
- Look for high-demand items such as furniture, tools and sports equipment. They can help you to raise money while getting rid of items you no longer need.
- Repurpose your old trash, it may become someone’s treasure. Here are some examples, which we recently shared on our blog for DIY crafty Halloween decorations.
4. Consider transferring, consolidating or settling debt.
You probably don’t want to make a habit of transferring debt from creditor to creditor, but if you have a high interest rate, you could look into lower-rate options.
- A personal loan from a bank may offer a relatively low interest rate.
- Some credit card companies offer zero percent interest for a year or so, if you transfer another card’s balance to them. Just be aware that there can still be a fee – often around 3 percent of the transferred amount. Also, remember that the interest rate will probably jump to a higher rate after the promotional period ends. A balance transfer calculator, such as this one at CreditCards.com, can help you determine whether a transfer might be worth considering.
- Negotiate a lower interest rate and/or debt amount. You could negotiate with creditors yourself, or consult with a reputable credit counseling organization, or consult with a reputable debt management service.
Look into the pros and cons of consulting with credit counseling and debt management services before diving in, and beware of scams. This article from the Federal Trade Commission is a good place to start researching.
5. Once you’re debt free, hold on to that freedom.
On the day you become debt free, do first things first: Yell in glee!
Then, keep your new, debt-free lifestyle going full speed. You also can start saving toward future expenses to avoid debt. Will you need to save for college expenses for your children, or for your retirement?
Consider life insurance to help safeguard your loved ones in case you die. For example, Gerber Life has various kinds of insurance that can help to financially protect your loved ones, should something happen to you. You can read more about this here.
Getting out of debt can seem like a long, tough road, but once you’ve reached the end, your pride in your accomplishment and the freedom you feel will likely have made the hard choices worth it. The sooner you start on that road, the sooner you’ll reach wonderful freedom.