After years of being in debt, freelance writer Rachel Kramer Bussel came to a realisation: “If I don’t become proactive about it, I will be in debt for the rest of my life.” For Bussel, that meant scaling back spending and putting any available money toward the debt principal.
“Starting to see it go in the right direction helped me amp it up,” she says. “I felt like, maybe there is light at the end of the tunnel.” Bussel, whose debt came from mostly credit cards and student loans, finally paid off all of her debt, which at one point exceeded $100,000 (Dh367,000), in 2020.
Paying off debt is a common goal as the new year kicks off. Bills for holiday shopping and other end-of-year spending often come due in January, and this year, rising interest rates make debt increasingly expensive. Several indicators worldwide show how, revolving debt, which includes credit card balances, continued to rise throughout 2022.
To attack your debt this month, try these strategies:
Look back, then forward
Elaine Grogan Luttrull, a US-based financial educator and counselor, says that before making a plan to pay off the debt, it helps to reflect on how it came to be in the first place. “Was it pressure? Excitement? Habits? Explore what triggers led to this debt, and sit with the emotion for a moment,” she says.
“Let’s not berate ourselves but be solution-focused,” she adds. Skipping that introspective step can make it hard to start taking action, she says, because it’s easy to dwell on just feeling bad about previous choices.
Get organised
Listing all of your debt with the accompanying interest rates helps you get organised and decide what to pay off first, Luttrull says. She suggests starting with the debt that carries the highest interest rate, also known as the debt avalanche method, but other people prefer to use the debt snowball method, where you start with the smallest debts first.
Next, look for money in your budget to redirect toward the debt payments. Luttrull says that if your student loan payments are paused, you could use that money to pay down credit card debt, for example. You can also look for lower-cost ways to socialise with friends.
Emma Johnson, founder of the website wealthysinglemommy.com, suggests combing through all of your banking and credit card statements to identify recurring costs you can immediately cut. Streaming services, gym memberships and cable bills are popular targets. “Do a New Year’s ‘spring cleaning.’ What can you adjust?” she asks.
Consider consolidating your debt
If you can qualify for a credit card with a zero per cent introductory annual percentage rate, then transferring your existing credit card debt onto that card can give you more time to pay it off without accruing additional interest, said Matt Elliott, a US-based certified financial planner. You could also consider seeking out a personal loan with a lower APR than that of your cards.
“If you have decent credit, it could be an opportunity to reduce the cost of interest to transfer the balance to a zero per cent credit card or a personal loan with a lower interest rate,” he says.
