Around 67% of Americans are considering a financial resolution this year — up from 61% in 2019. Living a debt-free life is the top motivator for a financial resolution. With the average American owing $38,000 in personal debt excluding mortgages, it makes sense for people to reduce their financial obligations. The good news, there are ways to reduce or eliminate personal debt provided you come up with a solid plan and the proper attitude to execute it.
A Debt Plan is a Vital Battle Plan
Not having a debt plan is like going to war without a battle plan making your chances of survival very low. Whether you have a small or a significant debt, you must come up with a comprehensive plan to pay off what you owe to up the chances of success. Start by listing expenses, eliminate those that are dispensable, and define how much you can set aside in your monthly budget that will go towards debt reduction.
Aim to pay off first as quickly as you can high-interest bearing loans. It is a good idea as well to make an extra payment to reduce your debt and the time you need to pay it back. However, before doing this, discuss with your lender to ensure that you are not going to get penalized for paying off a debt early.
Keep One Credit Card and Refinance Loans
Credit cards are big sources of debt with the average American household carrying $5,700 in balances according to a 2020 ValuePenguin Report. Ditch all but one credit card that you can use in an emergency and pay off balances at the end of the month. Doing so, not only makes you debt free, but also improves your credit score. Hence, the next time you need to avail of financing, you’ll have no problem proving your credit worthiness.
If you have loans that carry a high interest, consider refinancing your loan to work out a lower interest rate and reduce monthly payments. Another benefit of refinancing is to change the terms of your loan from an adjustable to a fixed rate, whichever is beneficial to your situation.
Enhance Money Levels
Finding an alternative source of income is another way to reduce your debt. If your disposable income is limited, belt tightening and sacrifices will help, but might not be enough to get rid of your debt quicker. In addition to your main job, there are several ways to augment income such as selling online or holding garage sales, taking part-time jobs such as delivery or driving taxis, and getting extra shifts at work for overtime pay.
It is also a good time to consider a career pivot. If you feel that you are stagnating in your current position, the industry you’re working in is dying, or you are interested in doing something entirely new, a career change is might what you need. Note that there are barriers to changing careers, namely inexperience in the sector where you want to work and lack of insider expertise. However, if you have a comprehensible career story to pitch to prospective employers, you might just land that job that pays better helping you achieve your goal of being debt-free.
Paying off debts faster is extremely challenging given that you are working against fixed income levels. But, if you have a robust plan and are prepared to make sacrifices, it possible to become debt-free sooner than you think.