When you’ve taken on debt, paying it off can begin to feel like a hamster wheel, especially if interest is increasing the amount you owe every month.
But it’s not impossible to get your debt under control and start paying down that credit card or loan. And it’s important to do if you’re planning to buy a home. Less debt means more ability to save for a down payment and better mortgage loan terms when the time comes to buy.
Here are some strategies to start paying down debt now:
Take inventory
Find out how much debt you have. Use a tool like Quicken’s Simplifi, another budgeting app, or even just a pen and paper to itemize all of your earnings, expenses, and debts. The best method is one you will actually use. Add up everything you owe to credit cards, car loans, student loans, and anything else outstanding that you need to pay. You can also use a tool like NerdWallet’s debt load calculator to get a full picture of the amount you owe so you have a clear place to start paying it off.
Nix non-essentials
Now that you have an inventory of your earnings and expenses, go through your budget line by line and get rid of non-essentials, like unused streaming services, unused gym memberships, or other unnecessary subscription services.
Scale back
Make note of where you’re shopping for essentials. For example, you might consider driving a few extra miles to a big bulk store instead of shopping at your more expensive neighborhood boutique market or closest gas station.
Lower your bills
Don’t hesitate to call your cell phone, internet, car insurance, or energy provider to negotiate a lower rate. If you don't have any luck, you might get a better deal if you switch providers. Research various providers’ rates in advance so you can negotiate effectively.
Always make the minimum payment
If nothing else, always be sure to make the make the minimum payment required every month. Otherwise, your debt will continue to increase thanks to interest.
Try the snowball method
Personal finance guru David Ramsey came up with the snowball method, which involves paying off your smallest debt first. You then take the amount you were paying on that debt and use it towards your next smallest debt. Continue in this manner until all or most of your debts have been paid off.
Focus on maxed-out cards
Prioritize credit cards that you’ve maxed out or are close to it. Your credit score hinges partially on “credit utilization,” or the amount of credit you’re using compared to the limit available. You can also ask credit cards to increase your limit.
Try credit counseling
If you’re still struggling to pay down debt, you might try a non-profit credit counselor. These organizations can help you strategize at little or no cost.
Debt relief programs
If you’ve tried all of the above and are still struggling, a debt relief program might seem like a good idea. But these programs can be risky. They often charge large fees and using them could damage your credit score.
Coming up with a strategy for paying down your debt will bring you closer to buying your first home—plus it will feel great to take control of your finances.
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