Your Guide to Paying Down Debt

There are many reasons people just like you end up with overwhelming debt. They lose a source of income. Something unexpected happens and brings with it an unexpected expense. They lose track of spending. Sometimes, it's all of these combined.

However it builds up, the strategies for bringing it back down are the same – and, more importantly, completely achievable. Here is how to do it.

1. Review your finances first. Make a list of your debts, including their balances, interest rates, and payment amounts. Write down and add up all your regular expenses, including your credit payments, and do the same for all your regular income. For expenses and income that vary each month, look back and estimate an average. If your expenses exceed your income, cutting spending is a must. Look for things that are not necessities, such as meals at expensive restaurants or any luxuries you can do without. From this budgeting task, you can start to identify funds you can use to pay down your debts.

2. Change your financial habits. This is easier than it might sound since you already created a budget in the first step. This budget will give you a guideline for spending as you go forward. Keep that spending in mind as you make purchases. Don't bring your credit cards to go shopping – and use cash or a debit card instead.

3. Pick a loan to pay off. Generally, choosing the loan balance with the highest interest rate is best, though you can pay off loans with smaller balances. Make more than the minimum payment with the extra funds you identified in the first step.

4. Lower your interest rates. If you can qualify, consider getting a debt consolidation loan that offers a lower interest rate than what you are paying on your debt. You could also take advantage of balance transfer deals that offer low or no interest on transferred balances. Just remember that these low rates usually expire after six to 12 months. By rolling higher-interest debt into a lower-interest loan or credit card, you are automatically saving on interest and reducing how much you will pay for your debt.

With these four steps, you should see real progress over time. Just be patient and stick with it. However, if you need additional help, it is available. The National Foundation for Credit Counseling offers free credit counseling services, and your friendly team at United Community is here to help you, too.

Struggling with debt? Give us a call at 713-674-5778 to see how we may be able to help.