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7 steps to more effectively manage and reduce your debt

If you’re looking for a better way to manage your debt, with a 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, however, or the wrong kinds, such as high-interest credit card debt, can hamper your ability to pursue other financial goals.
 
In order to manage your debt more effectively, you may want to consider these seven steps.

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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.
 
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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 on there 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 you with your score at no cost.
 
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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.
 
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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.
 
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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  put 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.
 
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6. Figure out how much extra you can budget
Once you have the baseline of how much you have 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.
 
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7. Determine your debt-reduction strategy
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. The former will save you more money over the long run, but the latter can help you keep momentum and see progress. Either way, you’re taking steps in the right direction, so stick with your plan!
TIAA does not provide tax or legal advice. This piece is being provided for educational purposes only and does not constitute a recommendation or advice. You should carefully consider your unique circumstances before making any decisions regarding your student loans.
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