Tips for managing and reducing your debt

If you're looking for a better way to manage your debt, with the goal of eliminating most or all of it, you’ve already taken a step in the right direction. As you prepare to move forward, remember that some debt isn't bad—a mortgage can help you achieve the goal of owning a home and may help you build wealth if your home appreciates in value. Too much debt, however, or the wrong kind, such as high-interest credit card debt, can hamper your ability to pursue other financial goals.

It's time to actively manage and reduce your debt when you:

• Have debt payments (including mortgage, car loan or lease, credit card balances, and other debt) that are more than 35% of your gross income
• Pay your monthly bills late on a regular basis
• Can only make the minimum payment on your credit card bills
• Reach the available credit limits on your credit cards
• Have recently been denied credit

6 steps to more effectively manage your debt

1. Take account of your accounts First things first: Make a list of all your outstanding debts. Include the interest rate on each so you'll be able to determine which ones are causing you the most financial pain.
2. Check your credit report Request a free copy of your credit report from one or more of the three credit-reporting agencies. This will help you make sure you haven't forgotten about an outstanding debt. Plus, it's always a good idea to make sure there aren't accounts included that you don't recognize. If you want to find out your credit score, check with your bank or credit card company to see if they can provide it at no cost.
3. Look for opportunities to consolidate If you have multiple high-interest loans, can you consolidate them into one loan with a lower interest rate? Do you have access to a low-interest personal loan that you could take out to pay off high-interest credit card balances? Before consolidating or refinancing any student loans, you should carefully review your eligibility for federal loan forgiveness programs, which may be impacted by loan consolidation or refinancing.
4. Be honest about your spending  If your debt feels overwhelming, it's worth taking an honest look at what you're spending each month. Are there expenses you can cut back on or eliminate? Part of reducing your debt is limiting the additional debt you take on.
5. Determine how much you have to pay Once you've consolidated, determine how much you have to pay each month by noting the minimum payments and add the total into your budget. If the amount is more than you can manage in your budget, you may need to contact lenders to see about arranging different terms.
6. Figure out how much extra you can budget After you have the baseline of how much you need to pay each month in your budget, determine how much extra from your budget you can devote to debt reduction. Hopefully, those expenses you reduced give you a little more discretionary money to put toward this goal.

How you attack your debt is up to you. The two most popular strategies are to pay off balances with the highest interest rates first or to pay off the lowest balances first. Paying off debt with the highest interest rates first will save you more money over the long run, but paying off debt with the lowest balances can help you keep momentum and see progress. Either way, you’re taking steps in the right direction, so stick with your plan!