- $35,000 – the average student debt load for a 2015 college graduate
- 71% of people earning a Bachelor’s degree have at least one loan
- 34% of Americans carry revolving (month-to-month) credit card debt
You do not want to be trapped with a large debt load and no assets. Develop a plan and incorporate some of the following ideas.
- Prioritize Your Debts – Not all debts impact you equally. Examine your finances and identify the debts with the highest interest rates. Pay off the highest interest rate debt first.
- Negotiate, Negotiate – Whether it is the interest rate on your credit card or the cost of cell phone service, call and ask for a lower rate. Think of it this way, businesses negotiate with vendors to reduce their costs all of the time. Take the same measures to avoid unnecessary expenses.
- Beware Careful with Debt Consolidation Plans – It is normal to feel embarrassed and overwhelmed by your debt load. You might also be a shy person who gets nervous at the thought of negotiating with a company. It is tempting to use a debt consolidation company. Not so fast! Many “professional” debt consolidation plans/services are not beneficial to you. A credit card issuer might give the same interest rate reduction to the debt consolidation company that it would have given to you. Unfortunately, you now owe the negotiator a fee.
- Examine Balance Transfers – The balance transfer is another strategy that can have more downside than upside. Some cards hit you with a balance transfer fee that might total hundreds of dollars. If you try shifting debt from card to card multiple times, it lowers your credit score. A lower credit score equates to a higher interest rate for a car loan or mortgage. Do not make a balance transfer unless the deal is sound (i.e. 0% rate) and you pay off the card before the teaser rate expires.
- Monitor Your Expenses – How much do you spend on restaurant meals (breakfast, lunch, and dinner) during the week? Do you go shopping for a new coat and come out of the store with a new outfit and shoes too? “Convenience” and impulse buying really add up quickly for people. Reduce the number of times you eat a restaurant meal per week. Make a shopping list, stick to it, and do not get lured into buying extra items.
- Apply Extra Money – Did you earn a bonus at work? Receive an income tax refund? Inherit money from a relative? If you received a windfall, use it to pay down debts.
- Make More Money – You do not want to spend money frivolously. However, you need to maximize your earnings too. If you’re a top performer at your company, make a case for better compensation during your next review. Consider taking a side job and applying all of your earnings from it toward debt reduction.
Enjoy the Fruits of Your Labor
High debt loads cause anxiety and threaten your long-term financial freedom. One researcher found that households without credit card debt had 3 ½ times more savings than those with credit card debt. Do not let yourself become just another sad case. Start reducing your debt today.