The fun was over for many in October 2023. Financial anxiety, as well as credit card debt, have increased across Gen-Z. Student loan payments are now in full swing after Covid deferred payments for many.
“Debt” – a simple four-letter word, but one that carries a heavy burden. The weight of debt can be overwhelming, especially for those in the early stages of their financial journey.
Understanding the Debt Landscape
Before diving into the various strategies for managing debt, it’s crucial to understand the nature of your debt. This involves assessing how much you owe compared to your income. It’s a comparison of your gross annual income against the amount you owe in key areas such as student loans, credit card bills, personal loans, and others.
Evaluating Your Debt Load
The first step is to assess and understand your debt load. It’s important to distinguish between manageable debt and an overwhelming debt load. The latter might require considering debt relief options. The following calculator compares the amount you owe on key debt types, and compares it to your gross annual income (total pay before taxes or deductions).
Note: You can find several online calculators to assess your debt load.
DIY Debt Payoff Methods
Do. It. Yourself. That’s right, nobody is going to save you financially. It’s on all of us to do this ourselves.
Once you have an understanding of your debt load, you can start exploring various strategies to pay off your debts. There are several methods you can apply, each with its unique benefits and drawbacks. All come with personal sacrifice and come with the mindset of longevity until you’re seventy, so buckle down and get your money right.
The Debt Snowball Method
The debt snowball method is a popular strategy for paying off debt. This method involves focusing on your smallest debt first, and putting all the extra money you can towards paying it off, while continuing to make the minimum payments on your other debts.
Once the smallest debt is paid off, you roll the amount you were paying on this debt to the next smallest debt. This process continues, and your payments snowball, hence the name.
The Debt Avalanche Method
The debt avalanche method is another strategy, where you focus on the debt with the highest interest rate first, while making minimum payments on your other debts. Once the highest-interest debt is paid off, the next highest interest debt is tackled, and so on. This strategy can save you money over the long run by eliminating high-interest debts first.
High Credit Utilization Method
A third method involves focusing on paying down credit cards with the highest credit utilization (the highest percentage of the credit limit being used). Credit utilization plays a significant role in your credit score, and lowering it can improve your score.
Debt Consolidation
Debt consolidation is another strategy that involves combining high-interest debts, like credit card balances, into one monthly payment, ideally at a lower interest rate.
This approach can make your payments more manageable, shorten the time it takes to pay off your debt, and lower your overall interest rate. However, be cautious of the risks involved, such as putting your home or retirement savings at risk.
A service that has grown popular amongst millennials is SoFi. SoFi, (which stands for Social Finance, Inc.) began as a student loan refinancing company and has since expanded into a broad financial services.
These types of services provide options and consolidation of both private and public loans while setting their clients a plan towards tackling their total debt based on their budget.
Please Note: (We are not affiliated with SoFi. This is not an advertisement, but just a tool that can help get your research started)
Budgeting to Boost Debt Payoff
A gross word that nobody likes to hear. That’s because it usually requires tough truths and sacrifice. Money is meant to be enjoyed and our generation tends to spend money faster than we make it. Enjoying today too much and not the end goal, financial freedom.
Budgeting is a tool that can help you manage and reduce your debt. By having a clear understanding of your income and expenses, you can identify areas where you can cut back and allocate more towards paying off your debts.
Choosing a Budgeting System
There are numerous budgeting systems available, and it’s important to find one that suits your needs and lifestyle. You could opt for a zero-based budget, the envelope system, or the 50/30/20 budget.
Again, that’s just an idea and something to google. We all have different responsibilities, expenses, goals and incomes.
Leveraging Technology
Technology can also play a significant role in making budgeting easier. There are numerous apps and tools that can help you track your expenses, categorize your spending, and automate your payments.
Now most of these Fin-Tech credit cards like Apple, Venmo, etc, that will actually break down your spending, how much, where and sometimes facing the data may be a tough pill to swallow but it’s up to you to make these financial adjustments.
Lowering Your Bills
Another strategy to boost your debt payoff is to lower your bills. This could involve negotiating a better rate with your service providers, switching to a cheaper provider, canceling unneeded subscriptions.
Increasing Your Income
Easier said than done. After having your soul sucked from your 9-5 but if you kind find something you enjoy or can do that brings in extra bucks, you’ll thank yourself one day.
Do this in addition to reducing expenses, finding ways to increase your income can also help you pay off your debt faster. 9-5 keeps the lights on, side hustle pays your debt. This could be the expedited route towards financial freedom. Also, who knows, your side hustle that was once a fantasy can become your primary stable income. You’ll never know until you try.
Considering Debt Relief
If you’ve tried all of the above strategies and are still struggling with your debts, it might be time to consider debt relief. This could involve working with a counseling agency, filing for bankruptcy, or settling your debts. However, these options should be considered as a last resort as they can have long-term impacts on your credit score. So when doing your research, tread lightly.
Taking the Next Step
Managing and overcoming debt can seem overwhelming, but with the right strategies and tools, it is possible. Whether you choose a DIY approach, debt consolidation, budgeting, or a combination of these strategies, the key is to stay focused and committed to your debt payoff plan.
Remember, the journey to becoming debt-free is a marathon, not a sprint. Stay patient, keep your eyes on the prize, and before you know it, you’ll be celebrating your financial freedom.
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