Most U.S. households carry some level of debt, particularly in areas of housing, auto loans, student loans, and credit cards. Total household debt in the U.S. is already over $17 trillion, up from last year.
While holding some amount of debt is often inevitable, poor financial management can let personal debt continually accrue and eventually lead to financial crisis. Not all debt can be paid off quickly, but some small sacrifices—combined with financial discipline and a commitment to better long-term money management—can go a long way in reducing debt to a manageable amount. Some tips to get started now with better debt-management habits:
Budgeting is not fun, and while it also used to be time-consuming, numerous budgeting apps and online tools have come along to make the process easier and more user-friendly. If you don’t prefer a budgeting app, a simple spreadsheet can be just as effective in laying out for you a clear picture of your incoming and outgoing money and your minimum required monthly debt payments. Create spending categories and then set aside specified monthly amounts for your essentials. List each of your debts and the dedicated amounts you can direct toward them each month.
Part of the reason people go quickly into debt is because they aren’t keeping track of their purchases, subscriptions, and financial commitments. Expense tracking is not just for businesses; it can be helpful for individuals and households, as well, especially when a large debt is beginning to accrue. Your spreadsheet or online expense tracking program can help you keep lists of all you spend and give you a real-time picture of where your money is going each month so that you can make continual adjustments and improvements. Keep receipts for large purchases so that you are reminded to record them.
If the high interest rates on loans and credit cards are stalling your progress, there may be ways to consolidate multiple balances onto one card with a more budget-friendly interest rate. It doesn’t hurt to investigate refinance rates, as well, and stay knowledgeable about changing bank rates so that you can take advantage of a better mortgage or loan rate when it becomes available. Higher-yield bank accounts and CDs may be available to you, as well, to generate interest each month that you can add to your debt repayment.
If your debt is starting to become unwieldy, there's a good chance you are spending money on at least one thing that you could live without—for a little while, at least. Your essential spending categories don’t have much negotiating room, but you may be able to choose one or two nonessential items that you can forgo in order to redirect all of that money toward paying your debt down faster. If you have multiple subscriptions to music, movie, and media streaming services, look for one or two pricey ones that can be put on hold until your debt is significantly lower.
Making late payments is a vicious cycle: when you are a little short, you make a late payment. That late payment incurs a penalty fee, making it harder for you to pay that creditor on time the next month. These late fees can accrue and add to an already-snowballing debt. Paying your bills promptly is one of the most important elements of good financial management. Online tools for on-demand check printing and mailing can have needed check payments printed in seconds and even mailed for you, same day. If you use Checkeeper, all check payments are automatically recorded and stored in a searchable online registry for seamless expense tracking and comprehensive exporting when needed.
Everyone likes to splurge once in a while, and you don’t want to always have to stop yourself when you find something spontaneously that you want to buy. But for the time being, while you are proactively working to pay down debt, it helps to put the temporary breaks on spur-of-the-moment spending. You already did the hard work of making a budget—now comes the even harder part where you stick to it, even when it is tempting to stray. If you can resist the urge to spend outside the budget on nonessential items for a short time, you can stay on track and put a larger dent into your debt payments.
High personal debt puts a lot of stress on individuals and households. The overwhelming majority of Americans carry some personal debt, but the challenge is not letting it become so burdensome that it impedes enjoyment of all the things on which the money is being spent. For those whose level of debt has become so high that even small adjustments and spending restraints are not enough, you may consider a temporary side job whose income is devoted entirely to paying down debt. If the debt is growing but manageable, smaller day-to-day changes may get you out of debt gradually while also instilling better financial habits to keep you there.