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Despite the fact that many of us treat “debt” like a dirty word, millions of Americans are drowning it in. Even after a huge bump in debt repayments this year, Americans are still past due on their credit card payments to the tune of $945 billion. On top of that, we also collectively owe $1.7 trillion dollars in student loan debt, according to the Federal Reserve of St. Louis. It can be daunting to deal with debt, but you don’t have to do it alone. Here are a few manageable steps you can take to pay back what you owe.
If you can’t feed yourself or keep a roof over your head, you need to prioritize those basic needs before you start paying down any debt, explained Stephanie Ruhle, NBC News Senior Business Correspondent. “This year the priority is paying your rent and getting food on the table, even for people who have never had those concerns before,” Ruhle said. “Don’t beat yourself up, this time is different.”
Tiffany Aliche, financial educator and founder of The Budgetnista, agreed. “That stress and that tension [of being in debt] sometimes causes you to overcompensate and forget that you are more important than your bills and your debt,” Aliche stressed. “[Your lenders] cannot get their money if you are not working, if you are not healthy, and you are not able to sustain an income.”
Once your most basic needs are met, build up an emergency fund while you make at least the minimum payments on your debts. If you are making money again, it can be really tempting to throw every extra dollar at your debt payment, but you should prioritize saving three to six months of living expenses while you’re chipping away at your debt. “Because we don’t know what the year ahead will bring, if you know you have a financial cushion, it will help you make better decisions today,” Ruhle said. “If you haven’t got a safety net, you’re much more likely to make a bad decision about a job, a bill, anything related to your financial security.”
When it comes to which payment to make first, not all debts are created equal. You will save the most money if you pay off your highest-interest debt first — usually on credit cards, or any other double-digit interest rate. Or, if you have many different types of debt, you can pay it off smallest to biggest and keep knocking them out one by one. This option might be better if you have a couple of credit cards to pay off, and a big, low-interest debt, like a student loan.
One of the tough things about paying off your loans is not creating new ones. “For everything that you buy that you’re not paying for with cash, you have to ask yourself: Do I feel comfortable taking out a loan for this?” Aliche advised. “If I’m checking my credit card at McDonald’s, I’m taking out a loan for this burger and fries, and does that make sense?”
While you’re working towards a positive net worth, try going on a cash diet, making sure you’re living within your essentials budget, or even quit credit cards cold turkey so you’re not accruing more interest on top of what you already owe.
One of the fastest ways to accelerate your debt repayment is by increasing your income, either by getting a bump in pay or creating additional streams of income, including investing. But that’s not an invitation to blindly throw money into the stock market. You need to have your basic needs taken care of, your emergency fund fully stocked, and able to pay at least your minimum payments first.
Emily Pandise is a producer and reporter for NBC News, covering business, tech and media since 2017. In her early 20s, she realized she had no idea how to manage her money. She set out to change her financial habits, and she did. Now, she wants to help others do the same. You can find her on Twitter and Instagram @emilypandise.
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