7 Ways to Lower Your Debt and Improve Your Finances
The overall economy may be improving, but the personal debt crisis continues. For instance, total student loan debt has reached $1.5 trillion with 44 million borrowers overall. Meanwhile, mortgages have racked up $10.5 in total debt. These macroeconomic figures affect millions of households, but there are ways to reduce debt burden.
1. Establish Clear Numbers
One of the biggest obstacles to managing debt is not having a clear picture of your finances. By accurately outlining all your sources of debt, it allows you to set priorities. For instance, the largest loan might not be the one you should pay off first. High interest loans extract more cash per dollar borrowed, so pay those off first.
2. Refinance Loans
Refinancing basically exchanges one loan for another with more favorable terms. Too many borrowers carry high interest rate loans without considering other lenders. For instance, a multi-lender marketplace can help student loan holders save an average of $18,000 over the life of the loan. These web-based platforms show you prequalified rates with multiple lenders. Similar services exist for mortgages and car loans as well.
3. Renegotiate Insurance Premiums
Insurance payments are a permanent line item on any household budget. However, rates may vary significantly among insurers. For instance, if you have a good driving record, you may quality for a lower auto insurance rate. Any insurance you pay for may offer a lower premium that offers the same coverage.
4. Reduce Spending
While this might appear to have nothing to do with debt, consider credit card debt. If you don’t pay off the balance in full every month, any amount charged contributes to overall accumulated debt. Reduced spending has a double benefit as you can use savings to pay down debt faster. Remember, the loans with the highest interest should be paid off as quickly as possible.
Never underestimate the tried and true method of identifying exactly where you spend your money (credit card statements, receipts, etc.). Then make a mature effort to cut costs in an reproducible manner.
5. Swap Your Credit Card
Taking out multiple credit cards to extend your debt typically leads to financial disaster. Adding more debt never solves an existing debt problem. However, you can shop around for credit cards that offer incentives that can boost savings. For instance, cash-back programs can free up funds that can be put towards paying off outstanding loans.
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6. Establish an Intelligent Medical Cost Plan
Large medical bills are one of the leading causes of bankruptcy as many take out high interest loans to cover costs. If you have an existing debt, it’s worth asking hospitals and doctors offices if they offer interest free payment plans. Even if they don’t have an interest free option, try to negotiate for a lower rate.
You might also want to read 5 reliable ways to dig out of debt.
Another method to save on health care costs is through a flexible spending arrangement or health savings account from your employer. The benefit may be twofold since these plans allow you to contribute tax free, and some employers will also make contributions.
7. Generate Extra Income
Online marketplaces such as eBay make it easier than ever to sell things. Look around your home for items that you no longer use but may have value (baby seats, highchairs, jewelry, toys, bicycles, etc.). Resist the temptation to use the cash for anything else than paying off existing loans.
Here are some other methods to generating extra income:
- Take a side job until you pay off a portion of or all your debts.
- Rent out a section/room in your home.
- Consider working for a ride-sharing platform. This offers flexibility to match your schedule.
Any extra income should be dedicated to reducing debt. Solid personal finances have little, if any, debt that is managed in an intelligent manner.