How to Pay Off Your Household Debt

Written by Posted On Wednesday, 29 May 2019 13:02

It's no secret that debt is a major issue for many American households. In fact, a recent study shows that Americans owe 26% of their income to debt (source).

If you're in the same situation as millions of other Americans looking to pay off debt, what can you do?

Here are some practical and realistic tips.

1. Choose a Debt Payoff Approach

There are a few different ways you can go about paying off debt. Dave Ramsey has popularized the debt snowball method, although he didn't create it. The debt snowball involves paying off your smallest debt first and working your way up to the largest debt, without regard to the interest rate. The idea is that you'll be motivated by the quick wins of eliminating debts, even if the balances are small.

The opposite approach is the debt avalanche. This approach involves paying off the highest-interest debt first, without regard to the size of the balance. Mathematically, paying off the highest interest rates first will decrease the amount that you pay over the life of the loans.

Many people love the debt snowball because it impacts your mentality and encourages you to keep going. Debt payoff can be a grind, so any mental edge that you can get will help. You can use a debt snowball worksheet to help track your progress and stay organized.

2. Create Budget

The next step is to create a monthly household budget. It's important that you allocate as much money as possible to debt payoff. This might mean that you need to make some sacrifices in other areas, like not eating at restaurants, cutting back on social events, or getting rid of cable TV. The sacrifices that you make will allow you to pay off your debt faster.

3. Save as Much as Possible

It goes without saying that the less money you're spending each month, the more money you'll have to pay down your debts. It may seem like there is no place in the budget to save more, but if you look hard enough, you'll usually be able to find some ways to save significant amounts. In fact, with a little bit of effort, you can reach the goal of saving $5,000 in a year, which can make a huge difference in your debt payoff.

4. Stick With It

One of the most common pitfalls that people face with debt payoff is that they simply give up too early. It's not easy and you'll need some patience. If you feel like constantly trying to save money to use for your debt is getting too hard, try taking a money-saving challenge, which can help to make it more fun and lighten your mood. If you're competitive, you'll love having the goal of completing a challenge.

Stick with it until you have all of your debts paid off, and you'll be glad you did.

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