Did you know that US household debt totaled $15.58 trillion in the final quarter of 2021? That’s a $333 billion increase from the previous quarter alone. Moreover, most debt types, except student loans, saw significant growth.
It’s no wonder then that, at the start of 2022, the average US family owed $155,622 in debt.
If you’re in the same boat (or owe more), it’s best to start clearing off debt and put more towards savings instead.
Not sure how to do that? Don’t worry, as we’re here to teach you how to pay down debt. So, keep reading to discover what you can do today to achieve a debt-free life.
Calculate Your Total Outstanding Debt
Create a list of all debts you carry, such as a mortgage, auto loan, credit card debt, student loan, or personal loan. You can either handwrite this or use a program like Excel for faster computation.
Next, take note of the following details:
- The total outstanding balance of each debt
- The due date for each monthly payment
- The minimum amount due
- The interest rate of each loan
Then, sum up all balances to get a clearer idea of how much debt you have. That may seem daunting, but knowing how much you owe can motivate you further to pay them off ASAP.
Making a list of due dates is just as crucial as you must pay off your debt on or before those days. Otherwise, you’d rack up more expenses, as failure to pay them on time can lead to late payment fees.
Knowing the required minimum payment also helps ensure you pay no less than that amount. If you pay anything under that, you’re likely to incur even more interest fees.
As for the interest rates, it pays to know them so you can determine which debts come with the highest ones. You can then use that knowledge later when deciding on your debt repayment strategy.
Decide on a Debt Repayment Strategy
Once you have a detailed debt list, decide if you want to use the debt avalanche or snowball strategy.
The goal of the debt avalanche method is to clear off the debt with the highest interest rate first. You then pay only the minimum amount due on all other debts.
After that, you can prioritize the debt with the second-highest interest rate. You continue this cycle until you’ve paid off everything you owe your creditors.
The debt snowball strategy focuses on clearing off the smallest debt. So, you make larger payments toward that debt while only paying the minimum amount due on the rest. Once you’ve cleared the first, you can focus on the second-smallest debt, then the third, and so on.
Trim Household Expenditures
According to the latest federal data, the average US household earned $84,352 before taxes in 2020. At the same time, the average family also spent $61,334.
Of those expenditures, $2,912 was for entertainment, $2,375 for food away from home, and $1,434 for apparel and services. On top of that was the $478 average spending on alcohol and the $315 for tobacco and other smoking supplies.
All those are expenses you can trim, which, if you do, frees up more of your budget. Then, with more funds to work with, you can make debt payments of increased amounts and frequency.
Start by downgrading expensive subscriptions, such as cable or satellite TV. You might also want to cancel those you can live without, such as gaming plans. Another trick is to cook and eat at home more often rather than paying someone else to make your meals.
Generate Cash From Valuable Possessions
The average US household owns a staggering 25 connected devices. That includes computers, smartphones, tablets, smart TVs, and consoles, to name a few. Many even own multiple gadgets of the same type (i.e., two or more laptops, phones, TVs, etc.).
If that sounds familiar, why not consider selling some of those items you own to pay down debt? Think it over; you could most likely live, study, or work with only one of each gadget.
You can also consider selling gold for cash, such as jewelry, coins, or bars. You can do the same if you own other precious metals and gems, like silver and diamonds. If they have no sentimental value or don’t see much use, selling them can help you pay off debt.
A vehicle is another high-value item you can sell and use to repay your debts. It can be a viable method if you have multiple cars and you’ve paid off your loans on one or more of them.
Sticking to one car also reduces your vehicle ownership and operation expenditures. That can save you thousands of dollars, as owning and operating a car costs over $9,000 a year. So if you sell even just one of your rides, you can use the money you get out of it, plus the savings, to clear off your debts.
Consider Refinancing
If you qualify for refinancing and it can lower your loan interest rate by 1% to 2%, consider going for it. Doing so reduces the amount you pay for interest, so you can then make larger payments toward the capital.
The more you pay toward the capital, the faster you can pay off debt. In the case of a mortgage, that can even help you quickly build more equity in your home.
Another way refinancing can help is by shortening your loan term. While that increases your monthly payments, more goes toward your borrowed capital. Thus, it saves you money on interest payments and lets you pay down your debts faster.
That’s How to Pay Down Debt
Now that you know how to pay down debt, it’s wise to do what you can today to nip away at what you owe creditors.
Just remember that the first step is to calculate your total balances. From there, prioritize the ones you want to eliminate early. You can then make larger payments by cutting costs, downsizing, or selling items you don’t need.
Are you looking for other tips on money or lifestyle matters? If so, we have more to share with you, so feel free to check out our most recent blog posts now!
