Carrying debt can make life hard. Big monthly debt payments can gobble up your income and leave you with little left over. What’s more, carrying debt makes it tough to save money for the future, qualify for credit and loans, or have something for a rainy day.
Unfortunately, many people carry debt, and it’s getting more difficult with higher interest rates in 2023. The average credit card interest rate in the U.S. is currently 23.84% – a staggering rate considering how many people use credit cards.
While debt can be overwhelming and stressful, there are ways to dig out and get back on track. Here are the top 5 ways to reduce debt in 2023.
1. Consider Debt Consolidation
One way to simplify your debt is to consolidate it into one loan. One loan means you just have one monthly payment to manage, and you can often get a lower interest rate by consolidating. You can consolidate debt via a balance transfer credit card, a personal loan, or a home equity loan. Just be sure to read the fine print and understand any fees or penalties that may apply.
2. Try the Debt Snowball Method
Many people use the debt snowball method to pay off debt. To use this popular strategy, list all of your debts from smallest to largest. Then, focus on paying off the smallest debt first. Continue down the list, from your smallest debts to your biggest, until all of them are paid off. It’s a great way to build momentum and stay motivated to pay down debt as you work your way down the list.
3. Tinker With the Debt Avalanche Method
The snowball method might not be for everyone, so if that doesn’t appeal to you, consider the avalanche method. The concept is the same, but with the avalanche method, you start with the debt with the highest interest rate. Start by building a list that orders your debt from accounts with the highest interest rates down to the lowest. Then, make your way through the list, paying each off. Paying off high-interest debt first can save you money in the long run and help you pay off your debts faster.
4. Use Technology as an Aid
One advantage to the modern digital era is that technology is abundant – and can be very helpful in paying down debt. Browse the internet for apps and tools that can help you manage your debt. Consider budgeting and spending tracking tools to monitor your income versus your spending. Other apps enable you to round up purchase amounts and apply the extra money toward outstanding debts. Get creative and explore the multitude of options to find what works best for you.
5. Talk to a Professional
If you carry a lot of debt, have carried debt for a long time, or simply feel overwhelmed, consider reaching out to a professional for help. A financial advisor can help you build a customized plan to pay off your debt and better manage your finances moving forward. A credit counseling agency is another good option as it can help you negotiate with creditors and create a debt management plan.
Reducing (and even eliminating!) debt in 2023 is possible with the right strategies and tools. No matter which strategies you choose, remember that reducing debt takes time and effort. The result will be worth it as you regain control of your finances and enjoy the peace of mind that comes with being debt-free.