Simple Tips to Reduce Your Debt by the Winter
Debt can be a source of problems in life, yet many Americans owe money for things like their credit cards, mortgages, car loans, student loans, and back taxes. The IRS found in 2020 that Americans collectively owed $114 million for government debts such as interest, penalties, and back taxes that had not yet been paid. Interest on these sources of debt can result in wasting hundreds or thousands of dollars a year without even reaching the principle that needs to be paid off. With these facts in mind, it is important for certain strategies to be used to decrease the total debt load over the next months before winter and the year’s end.
Things To Know About Budgeting
Budgeting is definitely one of the most important skills to reduce debt. A person who gets caught in a cycle of spending beyond their budget and then servicing their debt is unlikely to be able to get out of debt or have disposable income left over. This is why making a budget, planning how to stick to it, and then following through is one of the most crucial ways to reduce a debt load. Budgeting can also help a person detect unnecessary expenses and eliminate them.
No New Debt or Purchases That Are Not Needed
Debt can be serviced and paid down much more easily during time periods when there is no new debt from credit cards or loans. It is also important to avoid using disposable income or buying things that are not needed for those who are absolutely serious about getting out of debt quickly.
Seeing If a Mortgage Refinance or Payoff Is Possible
PolicyAdvocate found that total mortgage debt in the United States was at approximately $15.8 trillion. This means that mortgages are a significant source of debt for American individuals and families. There are certain companies that will refinance a mortgage, which can lower interest rates and payments and saves large amounts over the course of the loan. Some homeowners may qualify based on things like current rates being lower than when they borrowed the mortgage.
High-Interest Rates and Credit Cards
If a credit card has a high-interest rate and a high balance, this can become a serious financial burden. A person who makes only minimum payments can waste years on end paying off mostly interest and throwing away hundreds of dollars a month. When possible, the cardholder should try to make payments of several hundred dollars at a time or more to try to reduce the debt and pay off the card. While this may sound expensive in the short term, the high-interest rate means that the person will actually save much more money over time if large payments are made upfront.
Living Rent-Free or With Reduced Rent
Trend Statistics found that as of 2017, there were about 111 million American renters living in apartments. That represents approximately one-third of the entire United States population. Because renting does not build equity and is not considered an investment, people who are paying off their debt should see if they can find a unit with a lower price tag or a place where they can live rent-free with friends or family for a few months while serving debt. Each dollar that is not spent on a rent payment each month can potentially go towards getting out of crushing debt.
Looking Into Other Repayment Options
Some companies that hold a credit card or loan debt may offer repayment plans that help people pay off their debt quicker. These should be used if available.
Once Debt Has Been Lowered
By using these simple tips, debt loads can potentially be reduced by a significant amount in several months. When you have a debt-free or low-debt lifestyle, your stress levels will decrease and you can start spending your money on the things you need most and enjoy.