Paying down debt can sometimes feel like an endless journey. Even when you pay bills each month, it may feel like the balance never really decreases. It can feel like the only way you might ever pay down the balance is if something major, like a windfall of money or a raise, occurs in your life.
But there are ways to pay down your balance and build wealth — no new job or side hustle required. Here are tips on how to get financially unstuck and regain the stability to build wealth.
In order to get where you want to be, you first have to know where you are now. And this includes taking inventory of your current spending habits. One frequent cause of “missing money” is a phenomenon known as “lifestyle creep.” This is when, without you noticing, your expenses increase over time. For example, maybe pre-pandemic, you only got takeout once a month. Now, it’s more like once or twice a week. While it’s quick and convenient, habits like this can gradually throw off your budget.
“The best way to avoid lifestyle creep is to set financial goals and then regularly check in on your spending and budget,” explains Matt Lattman, vice president of Discover Personal Loans. “This helps you make sure you’re following up with your plan, adjusting as necessary and tracking progress toward your goals. If it helps, create a ritual that works for you, like taking yourself out for coffee, so that once a month you make dedicated time and space to focus on your finances.”
Next, figure out what your goals are. Is it to pay down certain credit cards or build an emergency fund? From there, get granular about how you might achieve these goals: by trimming an extra $100 each month from your budget, for example, or by saving a certain percentage of your paycheck. “You may already have long-term goals in mind, like saving for retirement or setting aside money each month to build an emergency fund. Short-term goals are important, too, such as having enough for an extra dinner out each month, being able to pay down some debt earlier, or increasing your 401(k) contribution,” Lattman suggests.
Once you have your goals in mind, assess what you earn and what you owe. This will help you make a specific plan to get where you want to be.
Money spent on interest means that money is not available for other things, like building your savings. Lowering your interest rates can save you money over time. There are multiple options for how you might reduce the amount you spend on interest. If you have a good relationship with your lender, you may start by simply asking them to consider lowering your interest rate. You may also explore options like a balance transfer with a low introductory interest rate.
Another option is consolidating high-interest credit card debt into a personal loan. A loan for debt consolidation, like a Discover personal loan, gives you one lump sum that can be used to pay off higher-interest loans directly.
“Because personal loans often have a lower interest rate than credit cards, they can help you put more of your money toward paying off your debt, saving you money on interest in the long run,” Lattman says, adding that 86% of surveyed* debt consolidation customers said they saved money with a Discover personal loan, and the majority of them said they saved an average of $440 per month. “That’s money you can use for other things, whether it’s increasing your emergency savings or doing something fun to reward your progress.”
When it comes to your financial health, it’s not just the money in your bank account that matters. Your credit score matters, too. A higher credit score can mean lower interest rates on things like car loans and mortgages, as well as personal loans and credit card offers. A high credit score can also give you more options, as a credit score is one factor lenders and landlords consider when assessing whether to approve applications, Lattman explains.
“Check on it at least every few months,” he says. “If you’re working on improving your credit health, you might want to check more often. Some banks, such as Discover, offer free tools to their customers that let you do this regularly and with little effort.”
Building your financial health is a process, and it helps to put consistent time on your calendar to focus on your budget and to review your progress towards future goals.
“The method that works best is the one that works for you,” Lattman says, adding that some people use apps, spreadsheets or may talk through strategies with a friend for an added layer of accountability. “Whatever you do, schedule it, repeat it and choose something that is true to you and what you know you can do.”
Padding your budget to include moments of celebration can help you stay on track, Lattman suggests. Whether it’s going out to dinner or grabbing a coffee, having some wiggle room to enjoy life can help you stick with a realistic budget and celebrate financial wins, while still working toward your overall financial goals. And then, if a windfall or promotion does occur, you already have the financial skills in place to be able to maximize it.
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You can save hundreds, or even thousands, of dollars on interest when you pay off up to $35,000 of higher-rate debt with a Discover personal loan. To estimate your savings, check out Discover’s debt consolidation calculator and input your outstanding amounts. Discover does not charge any origination fees and offers flexible repayment terms so you can choose the option that works best for you. Learn more about how Discover Personal Loans can help you reach your financial goals.
Discover makes loans without regard to race, color, religion, national origin, sex, handicap, or familial status.
*About the survey: Figures are from an online customer survey conducted September 13 to September 27, 2021. A total of 619 Discover personal loan debt consolidation customers were interviewed about their most recent Discover personal loan. All results @ a 95% confidence level. Respondents opened their personal loan between January and July 2021 for the purpose of consolidating debt. Agree includes respondents who “Somewhat Agree” and “Strongly Agree”.
This article was paid for by Discover Personal Loans and created by Yahoo Creative Studios. The Yahoo Finance editorial staff did not participate in the creation of this content.
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