Consumer debt in the U.S. hit $14.2 trillion in November 2020. On average, Americans have $92,727 in personal debt, so you’re not alone if you’re struggling to pay down debt.
When you have debt, it can feel like you’ll never get it paid off. Whether you’re trying to figure out how to reduce medical debt, how to reduce student loan debt, or how to reduce debt of any type, being strategic and intentional can help.
Check out these tips to reduce debt quickly.
1. Stop Adding to Your Debt
If you’re trying to figure out how to reduce credit card debt, one of the best things you can do is stop using your credit cards. Continuing to rely on credit to cover your expenses or buy splurges keeps you in debt.
If you’re holding onto credit cards for emergencies, consider building up a small emergency savings account that you can use instead. Start with $1,000 as a basic backup. Once you have that account started, you can pay down your debt aggressively, knowing you have the backup money if a real emergency happens.
If you do use credit cards for emergencies, make sure they’re true emergencies, such as an urgent car repair. Most things that you can buy at the store aren’t emergencies and aren’t a good use of your credit cards. Medical bills can often be set up on payment plans, so you don’t need to charge the amount upfront.
2. Increase Your Payments
One simple way to pay off debt faster is by increasing your payments. Only paying the minimum amount due, especially on high-interest credit card payments, will keep you in debt for years. Increasing your minimum payments reduces the balance faster and cuts down on how much interest accrues.
Many people use a debt snowball where all of their extra money goes toward one debt. If you choose this method, you might stick to the minimum payments on all but one of your debts. Put as much extra money as possible toward the debt you want to pay down first.
Once that debt is paid off, choose your next debt to focus on. Put all of your extra money toward that one, continuing the snowball until all of your debt is paid off.
3. Cut Your Other Expenses
Paring down your budget helps you find extra money that can go toward your debt. Your necessary fixed expenses, such as your mortgage, rent, car payments, and insurance, are often difficult to reduce. You might be able to refinance or shop around for different insurance carriers to lower those costs.
You can often find the most savings in your extra, discretionary spending. Groceries, eating out, clothing, and entertainment are big areas where you can cut back.
You don’t have to cut out all of the fun from your life, but being more intentional and reducing how much you splurge can help. Keep your goal to reduce debt in mind as a motivator to cut back.
Shift the money from those areas of the budget to your debt payments to see your balances shrink faster.
4. Create Another Source of Income
When looking for ways to reduce or eliminate debt, focus on increasing your income along with decreasing your expenses to maximize how much you can pay on your debt. If overtime is an option at your current job, that can be an easy way to increase your paychecks without finding a new job. A temporary part-time job could also be a solution.
Side gigs or freelance work is more flexible than a regular part-time job. You can adjust how much time you spend on the side gig instead of committing to a regular work schedule. Selling your unwanted items is another income source to consider.
No matter how you bring extra money into your home, put all of it toward your debt. Since it’s beyond your normal income, it isn’t allocated to other budgetary expenses. You won’t miss the money if it goes directly toward debt since you didn’t plan on having it anyway.
5. Put Unexpected Money Toward Debt
Money doesn’t just fall from the sky, but you might sometimes receive money that you weren’t expecting. Even in small amounts, that money can help cut down your debt balance faster.
Put all unexpected money you receive directly toward debt. Just like an extra income stream, these unexpected amounts of cash aren’t designated for areas in your budget. Pay debt with the money before you spend it on something you don’t need.
Possible sources of unexpected money include work bonuses, refunds, rebates, birthday money, tax refunds, or an inheritance. If you get a raise at work, put the excess money from your new paycheck amount toward your debt.
Your debt comes with a set interest rate, but you can sometimes negotiate those rates to reduce how much you end up paying. If your credit cards have a particularly high interest rate, call the company to see if they’ll lower it. Not all companies will reduce the interest rate, but it’s worth trying.
You can also try to negotiate a lower payoff amount. Some companies might be willing to accept a lower balance if you can pay off the account. This can also work on medical debt.
Don’t forget to negotiate your regular expenses that you plan to keep. You can often negotiate a lower rate on services such as internet or cable TV. This lowers your overall expenses and gives you more money to put toward debt.
7. Borrow Money
Taking on new debt doesn’t usually help your situation, but borrowing money to pay off high-interest debt could help you get your balance under control. Some options include debt consolidation loans, title pawn, or borrowing from someone you know.
If you choose to borrow money to consolidate your debt, ensure you can pay off the new loan. Get rid of the credit cards you’re paying off with the loan, so you’re not tempted to use them and charge them up again. If you do, you’ll have double the debt and will struggle to pay it all.
Reduce Debt Quickly
When you want to reduce debt quickly, you’ll often need to make sacrifices in other areas. Reducing spending and putting all extra money toward your debt temporarily gets you to a better financial situation faster.
Head to our finance section for more money tips.