While our recent bout with inflation has been a headwind to most of our pocketbooks, there’s good news when it comes to debt in America. According to Northwestern Mutual’s 2022 Planning and Progress Study, Americans started 2022 with 25 percent less personal debt than what we owed in 2019.
When you look at debt other than mortgages, Americans came into 2022 owing an average of $22,354 — nearly $7,500 less than what we owed in 2019. “With inflation rising at the fastest pace since the 1980s, many Americans have seen their savings begin to erode and their debt levels rise in recent months,” said Christian Mitchell, executive vice president & chief customer officer at Northwestern Mutual. “It’s a challenging time for consumers but on the bright side is that many people have been chipping away at their debt for the last several years. It’s a good reminder that a strong financial plan must factor in both what’s happening now and what could be coming down the road.”
Excluding mortgages, the top source of personal debt by far is credit cards.
Hopefully, you’re already making progress on your debt. But if you could use a little boost, these simple steps can help.
1. Get organized
Track all the debts you have. Include the amount you owe, the minimum payment and the interest rate you’re paying. 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.
While you always need to make the minimum payment on each debt, 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, 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.
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 need to make sure that you continue to make progress. And — most importantly — don’t be afraid to celebrate along the way.