'Basic Adulting’ is a series covering topics for younger investors who are just at the start of their journeys.
You never fully understand the idiom ‘the monkey on your back’ until you have debt to pay off. The debt hanging over your head can really ‘harsh your mellow’ if you don’t have a plan to manage it. Student loans, car payments, the mortgage, or maybe even a credit card balance – it’s overwhelming just to think about!
Poor debt management has all kinds of negative impacts on your life. Some are obvious – like the direction and health of your financial future. Some are less apparent – like how financial stress can put an enormous strain on your mental health. That’s why Brehne Financial Partners has gathered these debt reduction strategies to effectively manage and pay your debt off quicker.
There is no one-size-fits-all solution – so call me (Paul!) at 862.702.3500 or e-mail me at
[email protected] to tailor a customized plan that works for you and your lifestyle!
1. More than the Minimum
One of the most common and effective ways to expedite debt reduction is simple: pay more than the minimum every month. This seems obvious until you consider interest on the principal of your debt. When you pay more than the minimum monthly payment, every dollar over is applied directly to the principal of your loan. Less principal = less ongoing interest = faster pay-down timeline.
2. Snowball Method
Pay off your smallest debt as quickly as possible while still making minimum payments on the rest of your debts. Loading payments on your smallest debt will eliminate it quickly and give you a sense of accomplishment AND relief knowing you’ve eliminated one of your debt silos. These wins will help you stay disciplined on your debt-reduction journey.
3. Debt Consolidation
Individuals who have a lot of high-interest debt or many different monthly credit card bills may consider debt consolidation. Apply for a personal loan with a lower fixed interest rate, which will allow you to pay off your existing debts and eliminate the responsibility of managing multiple monthly payments. Furthermore, a personal loan is on a fixed schedule which takes the guesswork out of your monthly obligation and how long it will take to pay off your debt.
4. Transfer Balance
Many credit cards will offer a 0% APR on balance transfers for periods ranging from 9 to 21 months. You can transfer balances with excessive rates to a new card offering 0% interest to save yourself a lot of cash! (Note – there might be a one-time balance transfer charge upfront)
5. Ask for a Lower Rate
‘You won’t get anything unless you ask for it’ is nevermore true with debt reduction. You’d be surprised as to how often creditors are willing to work with you to make your monthly payments more affordable. Steep hospital bill? Call their billing department. Car payments higher than they could be? The bank might be open to refinancing your loan. Does your credit card have an extremely high interest rate? Ask the company for a lower one. In all cases, you might be surprised what the answer is. After all, the worst thing you’ll hear is, ‘no.’
6. Earn More Money
I know – most people are already trying to do that every day. But how hard are you trying? Are there opportunities for extra shifts at work? How much ‘hustle’ are you really putting into your side hustle?
If you have a car, you have extra earning potential. Driving for Uber or Lyft on a Saturday night can earn you up to $200 depending on where you live. Drive every Saturday for a month, and you could potentially earn an extra $1,000 to pay down your debt. With an app like Turo, you can simply rent your car out at a price you determine – no work required on your part.
7. Reduce Expenses
If you’re a millennial, you’ve likely already been scolded by some grey-hair about spending too much money on things like ‘avocado toast.’ But have you actually ever done the math? The average price of a Starbucks coffee is about $3 and any sandwich worth eating at Jimmy John’s is $7. Doing this only three times per week adds up to $120 over the course a month! If you made Friday the only day you went out for coffee & lunch with these assumptions, you could save about $80(!) a month. It adds up!
8. Stop Adding Debt
Though this another piece of advice that might seem obvious, remember not to get sold on anything you don’t really need – especially on bigger purchases. Many millennials are waiting to purchase a home until they are in a relationship to share expenses, for example. Do you really need a new car or just don’t like your current one that gets you from point A to point B? Same question can be applied to your phone or computer. Making these kinds of sacrifices in the short term will give you so much more flexibility and freedom in the long run.
If your financial picture feels more like a financial puzzle, if you need help strengthening your existing plan, or you simply want to take your successful financial strategy to the next level - I want to help. Visit my
website , e-mail (
[email protected]), or call me (Paul!) at 862-702-3500 to get in touch.
SourcesThe Balance: 10 Ways to Get Out of Debt 11/20/19 https://www.thebalance.com/start-getting-out-of-debt-960852Consumer Financial Protection Bureau: 7/16/19 How to Reduce Your Debt: https://www.consumerfinance.gov/about-us/blog/how-reduce-your-debt/US News: A Guide to Eliminating Credit Card Debt 7/30/19 https://creditcards.usnews.com/articles/a-guide-to-eliminating-credit-card-debt