Consumer debt is growing, and as the Fed continues to raise interest rates, and the price of everything from food (like eggs), gas, rent, utilities and more continues to go up, debt is now more dangerous than ever to have. As of Q3 2022, consumer debt was at $16.5 trillion, with the average American having around $96,371 in debt. But many Americans are looking for a new start in 2023 and ways to be more financially healthy. Here are a few things you may not know about debt and how to reduce your own:
What You May Not Know
One source of debt can take decades to pay off
It might seem surprising, but when you consider debts such as student loans, home loans, medical bills (some of the biggest sources of debt) and more, it’s not all that shocking. These debts that can’t quickly be paid off by the average American can become even more of a problem, especially during tough economic times when you may be late or miss a payment entirely in order to pay your bills. Even credit card bills of around $5,700 or more could take a decade or even longer to pay off.
Debt affects more than just your bank account
Debt can affect you financially, emotionally, mentally and physically. The stress surrounding debt can cause anxiety and depression, as well as a wide variety of physical health issues. Attempting and not succeeding at managing debt can cause stress, which can become a very heavy burden to carry. Interrupted sleep, inability to focus, weight gain or loss, neglected self-care, etc. can all stem from stress about finances alone.
Only 32% of U.S. households have a monthly budget
While this might not be a debt fact, it is directly related to debt. Budgets can help households know how much to spend each month in certain areas and how much of their money is actually going to savings. A budget is a great way to help get a handle on your debt too. If you’re spending without a budget and find yourself dealing with an unmanageable amount of debt, it may be time to sit down, review your finances and create a budget that fits your lifestyle. There are many different forms of budgeting, you don’t just have to try one. Test out multiple different styles to see which gives you the most freedom with your money and which might be easiest for you to stick to.
How to Get Debt Under Control
Write it down
Your journey to freedom from debt doesn’t have to be complicated. The first step might be hard, but it’s important to write down and figure out exactly how much debt you have, where it’s from and the interest rate on each amount. This can help you organize a game plan for reducing your debt. This can also help you prioritize your spending. By finding out where the majority of your money is going, you can have crucial insight into where you may be able to cut expenses.
Decide what order you’ll pay debts in
Now that you know how much debt you have and where it’s all coming from, you need to prioritize from most important to least important. Debts with a high interest rate could be a high-priority debt to pay off. You may find that by cutting costs in some areas (such as eating out) you can pay the minimum for other forms of debt and set your focus on the most important ones. You might even be able to put extra money towards those debts each month. Whether it’s $2, $50 or more, putting any extra money towards paying off your debts will save you money in the long run.
Consider taking out a loan
If you have an overwhelming amount of debt that can be consolidated, look into getting a personal loan. This type of loan often has a much smaller interest rate and can make it easier when you have one set amount to pay each month, instead of trying to figure out how much money you need to be paying towards each debt. Personal loans will give you a fixed amount of money over a fixed time period, at a fixed rate, meaning your monthly payments shouldn’t change and you’ll know exactly how long it will take you to pay off all of your debt.
Remember that no matter what amount of debt you have, it’s possible to make a change. This may be a completely different lifestyle than the one you’re living now, but once you begin to reduce your debt and can keep more money in your savings account every month, you’ll begin to see the reward of your hard work and have a much better relationship with money.