Updated March 2, 2020 . AmFam Team
If you’re struggling to pay off debt, you know it can be frustrating — and you’re not alone. The average American millennial earns an estimated 20% less than the average boomer did at the same age. With today’s high cost of living and skyrocketing student loans, millennials are having to take on large debt loads. And that makes it hard to pursue dreams like owning a home or saving for retirement.
The average American has around $38,000 in personal debt, not counting home mortgages. For those ages 18 to 24, student loans are the biggest source of debt at 28%, followed by credit card balances. For older millennials (age 25-34), credit card balances are the top source of debt, followed by student loans at 16% and mortgages at 3%. So you have a lot of company if you’re looking to get debt-free. Here are nine tips to help you get started down the road to financial freedom.
The first step is figuring out how much debt you have. Take a look at all of your loan accounts – the mortgage, credit cards, student loans, car payments and any other outstanding debt. Once you have a good handle on your total debt, you can create a plan to pay it off.
If you’re looking for ways to get your finances under control, start tracking what you spend. It’s the little purchases – like your daily vanilla latte – that add up over time. Make a journal for your finances and keep track of everything you spend, from big ticket items to little impulse buys. This is a crucial step in learning how to pay off debt.
Creating a budget is how you keep your financial dreams in clear focus. Thanks to the internet, you can take advantage of free budgeting apps to make it easier to stay on track when you’re on the go.
Credit cards might be convenient, but they come with a cost. If you don’t pay your balance each month, you’re paying interest. And that means you’re not getting such a great bargain on that pair of shoes. Asking yourself if a purchase is worth taking a loan for, and paying more for, will help you identify unnecessary spending. When you’re in the process of paying off debt, try not to rack up new loans or you’ll just be back in the same hole.
Paying the most you can to the highest interest loans you have — and the minimum to the lowest — removes your most expensive debts first. Once high-interest debt is paid off, tackle the next highest, and so on.
The object is to pay as little interest as possible. Home refinancing can make a lot of sense while interest rates are low. With vehicles, looking for zero-percentage rate transfer opportunities can buy you time to pay down debt. But zero interest percentage periods are short lived, after which interest rates can jump.
If you’re dealing with a lot of debt, it can be o. And juggling bills on multiple accounts can be a lot to keep up with. One way to make it easier to manage is debt consolidation — rolling all of those individual loans into a single, lower-interest payment.
Ever walk into a store with one thing to buy, and walk out with ten things (but not the one you came in for)? That’s a great way to drain your wallet fast. Before you go shopping, write out a list and keep it with you as you shop to avoid temptation. You might also find savings with coupons and special deals if you plan ahead.
Use your skills to freelance outside of your regular work hours to bring in extra income. You’ll be in good company — an estimated 57.3 million Americans are freelancing (Opens in a new tab) (36% of the total workforce). Or, if freelance isn’t your style, get a part-time job waiting tables or driving for a ride-share like Uber to make extra cash. You can also find things around the home you don’t use and sell them! Put that extra money toward paying off your balances more quickly.
This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.