The average amount of debt Americans have (other than mortgages) has fallen for a fourth straight year. According to Northwestern Mutual’s 2023 Planning and Progress Study, the average American has $21,800 in debt in 2023, with credit card debt being the most common source. That’s a full $8,000 less than the amount of debt we had in 2019.
While the overall story is good, the underlying numbers show a growing divide, with a large portion of people (35 percent) saying they’re carrying close to or at their highest level of debt ever. On the flipside, 43 percent of people say they are close to the lowest amount of debt they’ve ever had. Meanwhile, nearly two-thirds of people (61 percent) say they would prioritize paying off debts before saving for future goals.
Whether you’re buried in debt or you’re doing a good job managing what you have, it’s natural to wonder if you’re best managing your debt. Here, we’ll go through some steps you can take to manage your debt.
Debt repayment strategies
1. Get organized
Before you can do anything else, you need to get a sense of everything you owe, the minimum payment and the interest rate you’re paying. If you’re in the camp that has high debt, it might feel overwhelming to see the tally. But as you can see from the numbers above, you’re not the only one with debt. You’ve got this.
Not all debt is bad. In fact, debt can actually be a great financial tool when used wisely. If you have good debts (mortgages, student loans or even low- or no-interest debts), you should make the minimum payments. But in most cases, these are debts you likely don’t want to overpay, as you could use that money for other goals (like paying down bad debts and saving for future goals).
The reality is that you may also have some bad debts (think credit cards or other high-interest debt). This is debt that you’ll want to tackle and will likely want to pay down more quickly. There are a couple of strategies that you can use to pay down this debt. The first (and typically best) is to prioritize making extra payments on the debts with the highest interest rates first. The sooner you pay those debts down, the less you’ll throw away to interest each month. Another method you could consider is to make extra payments on the debt with the lowest balance. That can help you pay off individual debts you have quickly, which can be very motivating.
3. Lower your rates
You switch cable companies if a competitor is offering a deal, so why not refinance your debt at a lower rate? This is key as you think about how to get out of debt. If you have good credit, you might be able to qualify for a personal loan or consolidation loan or to refinance your student loans.
If you have credit card debt, consider transferring your balance onto a new card with a zero-percent introductory rate and no balance transfer fees. There’s no need to pay more than necessary in interest on your debt while paying it off. While you don’t want to simply move debt around, using strategies like this to lower your interest rates can help you free up cash to pay down your debts faster or to put toward other goals like saving for the future.
4. Find extra money to put toward your debt
While “budgeting” can have a negative connotation, it’s not meant to be restrictive. Budgeting is about prioritizing to make sure that you spend money on goals that are important to you. When you track your spending, you might be surprised how much you spend on things that aren’t really all that important. This is where you should look to find extra funds to put toward your debt.
You could also take on a side hustle. Driving for a ride-sharing service is a quick and easy way to make some extra cash. But you could use this as an opportunity to follow a passion. Always wanted to take up photography? Have you been dreaming of starting a blog? These could be opportunities to learn something new and put your knowledge to work for some extra cash.
5. Make it fun
Some couples have made a game out of getting out of debt. They find that it makes it easier and actually makes it fun. This will be a journey, so do what you must to make sure that you continue to make progress. And—most importantly—don’t be afraid to celebrate along the way.