For millions of Americans, debt is one of the single greatest causes for stress, anxiety, and concern. And in recent years, it seems as if debt has become increasingly common – particularly in the growing middle class.
If you’re one of the millions of people who are plagued by significant debt, perhaps 2019 could be the year that you get a grip and begin to chip away at your outstanding balance.
The State of Debt in America
While the economy has improved tremendously over the last decade, consumer debt has also increased at a rather alarming pace. According to data published in a recent NerdWallet Report, the total pool of consumer debt has now surpassed $1.3 trillion. The median student loan debt for a person who has attended college is now more than $49,000. The average household credit card debt is $5,000, while the median has surpassed $16,000. The average mortgage debt is right around $173,000, while the average auto loan checks in at more than $30,000.
When you look at the total average of all combined debt (including those who have no debt at all), there’s $139,500 per household. And with a striking gap between spending and income, as well as income stagnation and rising interest rates, it looks like this figure will only rise in the coming years.
Principles and Strategies for Escaping Debt
Just because debt has become a standard part of personal finance in America, doesn’t mean it has to be your normal. This could be the year that you finally chip away at your balances and escape debt once and for all. Here are some helpful strategies and steps to take:
1. Crunch the Numbers
Believe it or not, most people don’t even know what they owe, what the repayment terms are, or what sort of interest rates they’re paying. Do you fall into this category?
The first step is to figure out exactly how much debt you have, as well as how much money you have coming in each month. Armed with this information, you can start to see the picture a bit clearer.
2. Make a Plan
You need a plan for getting out of debt. Every situation is unique, but you may find it helpful to begin with debt consolidation.
“Debt consolidation generally means using one loan, credit card or service to pay off multiple loans, which can include revolving debt like credit cards or installment debt like personal loans,” RISE explains. “Instead of making payments to multiple creditors each month, you’ll make one payment to one entity. Debt consolidation can potentially lower your interest rate, reduce your monthly payment and/or shorten the time it takes to pay off your debt.”
But regardless of whether you plan to consolidate your debts or not, you need to set some goals. Establish a target date for when you want to get out of debt and move backward from that point. This will give you an idea of how much you need to pay off each month.
3. Cut Costs
Don’t feel like you have room in your budget to make extra payments on your debt? You may need to reassess your spending and cut out some expenses.
Some of the fastest expenses to cut out include cable TV, eating out, unnecessary online shopping, and subscription services (like Netflix, Spotify, and Amazon Prime).
4. Increase Income
In addition to cutting costs, be on the lookout for additional income earning opportunities. Just a couple hundred dollars of extra income per week could fast track your debt repayment plan.
5. Stay Motivated
Finally, it’s important that you stay motivated. While it’s easy to get excited about getting out of debt for the first few weeks, your energy may begin to dwindle after a few months. You can continue to drive yourself by keeping progress charts, snowballing your debt payments from smallest to largest, and asking friends to hold you accountable.
Don’t Let Debt Define You
There’s a time and place for debt – such as a modest mortgage – but it shouldn’t define you. Excessive debt will prevent you from building wealth and enjoying financial freedom. Take charge of your life and keep more of your hard-earned money.
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