Being in debt can feel like treading water—you pay and pay but never make much headway.
Fortunately, you can implement debt management strategies that help you gain more control over how to pay off your debts until you’re finally debt-free.
But before you try anything, you might want to review your debt situation first.
Assessing Your Debt
Knowing all your debts gives you a better look at your entire financial picture and whether you can handle it on your own or not. Some factors you should list include:
- The creditor: People or entities you owe money to, such as employers or credit card companies.
- Amount of debt: How much do you owe your creditor? If there are multiple creditors, how much do you owe each of them?
- Payments, interest rate, and terms: How much do you need to pay each month, and what’s your due date?
- Debt-to-income ratio: This is the percentage of your monthly income that goes to your debt payments. Ideally, the percentage should be lower since it means you still have money for other expenses and savings.
Once you’ve sorted out your debts, you can start planning ways to help you manage them.
Debt Management Strategies to Get You Out of Debt
1. The Snowball Method
The snowball method is a debt payment strategy where you pay off your smallest debts before moving on to larger ones—much like a snowball’s momentum. Generally speaking, you pay the largest possible monthly installment on the smallest debt while paying the minimums on the rest.
The idea here is that by paying extra, you’ll finish paying off the debt faster. With one less debt to budget for, you’d now have more cash each month to help pay off the next debt.
2. The Debt Avalanche
The debt avalanche works somewhat opposite to the snowball method. Here, you prioritize the debt with the highest interest rate. You pay extra for it while paying the minimum payments for debts with lower interest rates. By doing so, you can quickly get rid of the debt that could cost you more money in the long run due to interest.
3. Consolidate Your Debts
Debt consolidation is when you apply for one big loan—typically a personal loan—to pay for your other loans. Some of Power Finance Texas’ clients apply for installment loans for this very purpose.
With only one loan to deal with, you don’t have to manage several payments and deadlines, which can also have varying interest rates. It’ll help save you time and energy on budgeting.
4. Avoid Building Up More Debt
A simple way to start getting out of debt is to avoid creating more debt. The last thing you want to do is add more payments to your budget. In particular, you’ll want to avoid raking up bad debts.
A debt is bad when:
- It’s not used for growing your wealth
- You used it to buy something that decreases in value over time
- You can’t afford the monthly payments—which means your debts eat up your entire budget
Always using credit cards is a fast way of accumulating debt. If they’re getting harder to manage, you might want to consider using debit or hard cash in the meantime. Pausing your credit card can also help avoid any impulse purchases.
5. Minimize Your Non-Essential Expenses
Reducing your other expenses helps increase the amount of money you can work with. Try to check what you can cut back on for now, such as:
- Online streaming services (ex. if you use Netflix more than HBO Max, you can cancel the latter subscription)
- Dining out and shopping sprees
- Home services that you can do (ex. mow your lawn instead of paying someone else to do it)
Once you’ve determined what you can cut back, you can set aside the extra amount for debt payments.
Do keep in mind that debt management strategies aren’t one-size-fits-all. If you have trouble following any of the tips above, you could also consider getting help from a professional credit counselor. A professional can study your debt situation and develop a personalized management plan. They’ll also help negotiate with your creditors to give you a more manageable payment scheme.