If you’re like most American consumers, you carry some kind of debt — and it's probably greater than you'd like.
As of April, the average U.S. household with debt owed $132,529 including credit cards, mortgages, auto loans and student loans. Collectively, the Federal Reserve reports Americans owed more than $1 trillion in credit card debt alone as of September 2017, in addition to nearly $2.8 trillion in mortgages and other loans.
Texans are no strangers to the issue. When measured in June, the average household in Texas owed $6,948 in credit card debt, though that compared favorably to the national average of $10,955.
Sure, your ability to pay down your debt is hugely dependent on your earning power. But it also involves a healthy dose of self-discipline and sometimes self-denial when it comes to forgoing other tempting expenditures.
“Good debt management is 80 percent behavior and 20 percent head knowledge,” writes financial guru Dave Ramsey on his website. “Is it easy? No. In fact, it's really hard most of the time. But it's worth it. It's amazing to see people change their lives through simple determination and having a plan that works every time.”
In that spirit, consider these four tips that may help you pay off your debt sooner rather than later.
- Stop accumulating debt now. It’s obviously counterproductive to plan financially and cut back on extras if you just keep expanding your debt load on the other end. Force yourself to cut up your cards, or freeze them in ice so you have to think hard before thawing them out for additional spending.
- Prioritize pay-offs. The so-called “Snowball Technique” calls for ranking all your debt obligations from smallest to biggest; after making minimum payments on all, you use any extra money to pay off the lowest amount. Once that debt is paid off, you use all the extra money to pay off the second-largest, etc. The system earns you the psychological advantage of getting some balances to zero sooner, and having fewer debtors to answer to. And human nature makes it more effective than starting with the larger debt, according to research cited in Forbes. “Often, you can pay off your smallest debt in just a couple of months,” advises Rob Berger in the article. “Also, by the time you start focusing on the debt with the largest balance, you’ll be throwing huge amounts of money at it monthly … this can make that looming student loan or mortgage balance seem less intimidating.
- Boost your payments. Instead of sending in the minimum amounts due each month, aim to pay 50 to 100 percent more to take aim at interest costs and take steps toward a better credit rating.
- Consider consolidation. In some situations you can earn a lower interest rate on your entire debt load by consolidating the whole thing into a single loan. Such a strategy may shield you from exorbitant interest rates, reduce or eliminate pressure from creditors and discipline you to save funds for that one monthly payment. Options include personal, home equity or clear title auto loans. The latter two are easier to obtain because they use something valuable you own as collateral; they typically allow for higher balances, lower interest rates, and longer repayment times, with the caveat you could lose your asset if you default. Before choosing a lender, compare their rates, fees and loan intervals before making a decision, and be realistic about the payment amount you can feasibly make each month.
However you’re executing your debt repayment strategy, you should be pleased you’re moving in the right direction toward living debt free. And that’s a worthy goal for any consumer!