Every family’s financial circumstances are different, but debt is something that many Americans have in common. The problem is not necessarily having debt, but not being able to pay it off. Worse yet, some people find themselves getting deeper into debt. While the 2005 Cambridge Consumer Credit Index shows that 25 percent of Americans consider paying off debt a top priority, a 2004 survey conducted by LendingTree found that more than half of those concerned about owing high debts had no definite financial plan for eliminating those debts.
Take small steps. Every expense you cut is money you can save. If you lack the discipline to do it yourself, have money automatically deducted from each paycheck. Whether you are putting money into a retirement account or automatically transferring a sum from your checking to your savings account each month, your goal is to keep the cash out of your hands.
Think again about how you spend your money. Ask yourself if it is costing you more than you can afford to remain living in your current home. Be honest about whether you are living beyond your means. Downsizing may be the more practical approach to saving money.
Stay calm as you learn to handle your money. It may take you some time to get out of debt, but it can be done. Don’t be afraid to talk to your creditors, particularly credit card companies. Some may be willing to reduce your interest rate in order to make the remaining balance on the debt more manageable.
Use automatic bill pay options. This will keep you from paying late fees, especially if you have a habit of not paying your bills on time. Aside from saving you hundreds of dollars each year, you can raise your credit score. Even most utilities now allow you to make automatic bill paying arrangements.
Commit yourself to paying off one debt at a time. Start with your smallest debt or the one with the highest interest rate. Pay more than the minimum payment each month, using money that you save by cutting out non-essentials. When the debt is paid off, increase the monthly payment amount of the next debt in line until you rid yourself of that bill. Eventually, you will be able to pay more than the minimum payment due on your largest debt.
Make just one additional mortgage payment each year and pay off the debt five years earlier. If your budget does not allow you to make a full extra payment at the end of the year, divide it up over a 12-month period. You may save yourself tens of thousands of dollars in interest payments by the time you pay off the loan.