Personal debt is used in economics to relay the outstanding debt of consumers. Personal debt is primarily amassed through consumption and not investment. In the United States, the average amount of debt per U.S. adult amounted to $58,604 in 2023. The total personal debt in the U.S. is at an all-time high of $14.96 trillion. Most Americans worry about how to get out of debt and this article will give you an introduction on how to do it.
#1 List Out All Debts
Nearly half of Americans have said that their debt level creates stress and makes them anxious. Listing out all your debts and what you owe on each balance can help you face the facts and follow a plan to attack it head on. Next to each debt, record the interest rate, the minimum monthly payment, and its due date. Doing this will help you calculate the bare minimum amount you will need to pay every month and stay current on your debt.
#2 Start an Emergency Fund
Generally, you will want about 3 to 6 months of living expenses in this emergency fund. Why is that? Life will happen. You may need to pay for a flat tire, or you may have something unexpected happen. Having an emergency fund will reduce the temptation to pull out a credit card and put yourself deeper into debt.
#3 Reduce Your Interest Rates
There are three ways you can reduce your interest rates: ask your lender for a lower rate, consider a balance transfer credit card, or consider debt consolidation. Having a good payment history and good credit with a lender could help in negotiating a lower rate for a period of time or even permanently. Considering transferring your balance to a balance transfer card with an introductory 0% APR can help you save interest will you pay over your debt. You’ll need to meet some qualification like having good credit and typically need to pay a transfer fee of 3% or 5% of the balance you’re transferring. Debt consolidation can help you save on interest by combining multiple credit card balances into one lower-interest loan.
#4 Use the Snowball Effect to Pay Off Your Debt
By using the snowball effect, you will pay off all nonmortgage debt from smallest to largest. Here, you will pay the minimum payment on all debts except the smallest, which is the one you will hit the hardest. Once that is finished, you will then put all the money you were throwing at it into the next smallest debt. This will create a snowball effect that will help you keep moving.
#5 Do Not Give Up!
Paying off your debt will be a challenge on some days than others. It is important to not give up and that it will be worth it in the end. By not giving up, you should make a commitment to avoid taking on any new debt that is not necessary. Debt is common for every American, but it will hold you back from living your financial dreams, both today and in the future. By investing in yourself and not giving up, you will find a way to get yourself out of debt!
Call First State Investment Advisors for a free consultation at (918) 492-1361.
This overview is for informational purposes only and is not a recommendation. It should not be the sole deciding factor in making an investment. Investing is a risk and, as with all risks, a positive return is not guaranteed. Past performance does not indicate future results.