The average American household has a whopping $238,658 in debt. This might seem like an exaggeration, but let’s crunch the numbers: The average American has $15,762 in credit card debt. On top of that, they have $168,614 tied up in a mortgage and about $27,141 in auto loans. Add in the typical student loan debt of $48,172, and being two hundred thousand dollars in debt doesn’t seem extreme anymore.
Being so excessively in debt makes American bound to jobs they hate, just to make ends meet. Many American workers cannot feasibly retire when they reach 65 because they’ve spent their entire lives covering their monthly expenses; making an investment towards retirement is just not feasible. This is no way to live.
If you are in this category of debt (as most of us are), paying off your debt and reducing your monthly expenses probably feels like a pipe dream. Although it takes discipline and self-control, living with financial freedom is possible! We urge you to read our tips to help you manage your finances and reduce your monthly expenses to give you freedom in your lifestyle instead of being a slave to your debt.
Five Tips for Paying Off your Debt Fast
- Make a budget for your monthly expenses.
When you don’t know where your money is going, it is very easy to overspend. For example, spending $3 each morning on coffee And $7 on lunch doesn’t seem like a big deal, but over the course of a month it adds up to $300. If you make your own coffee and take a sack lunch to work, you would have an extra $3,600 a year to pay off debt with. By making an organized budget, you have control over where your money is going and you are less likely to overspend.
- Set up automatic deductions.
Once you know where your money is going, you can responsibly set up automatic payments that aggressively reduce your debt. When you have to manually go into your account and send debt payments, it can be painful. It’s far easier to just make the minimum payment and never get yourself out of your rut. Setting up automatic payments takes the self control aspect out of the equation.
- Tackle the smallest debt first.
Some financial experts recommend tackling the debt with the highest interest first. While this may save a few dollars if you have the discipline to stick with it, it does not account for human nature. When your debt is so great that the small payments that you can manage doesn’t feel like it’s making a difference, it’s more likely that you’ll get overwhelmed and give up.
Instead, start with one credit card at a time and focus your energy on it to get it paid off. Starting with the credit card with the smallest balance gives you the opportunity to pay it off the fastest and get that sense of reward when your balance is zero. After that one is paid off, apply the money that you were throwing at the first credit card to the next one, and and so forth. As you gain momentum, this snowball effect will eventually result in you getting out of debt.
- Cut costs and increase your income.
Consider ways that you can reduce the amount of money going out of your pocket and increase the amount of money coming in. For example, switch to generic brand toilet paper. As we mentioned, take a break from your morning latte and going out for lunch. Clip coupons and look for deals. If possible, exchange your vehicle that has a high payment in for a less expensive one.
While your monthly expenses go down, you should also focus on creative ways to increase your income. Take the clothes that you don’t wear to a consignment store and sell them. Consider any special skills or talents you have that could help you make money on the side (such as tutoring, fixing your neighbor’s car, making cookies and selling them). Take the money that you make above your regular income and throw it right at your debt.
Do you have any other great ideas for getting out of debt? Share them with us below!