How to Decrease Your Debt & Keep It That Way

Debt is a reality for most of us, but understanding how to decrease your debt is crucial for safeguarding your financial future. While the process can seem daunting, adopting effective strategies and making intentional choices can set you on the path to financial freedom.

Let’s explore practical methods for how to decrease your debt and why it’s important to tackle it head-on.

There Are Two Ways to Decrease Your Debt

1. Debt Snowballing

The Debt Snowball method focuses on paying off smaller debts first, regardless of their interest rates. Here’s how it works:

• Make minimum payments on all debts except the smallest one.
• Allocate any extra funds to pay off the smallest debt immediately.
• Once that debt is cleared, move to the next smallest debt and repeat the process until you’re debt-free.

This approach is effective because it aligns with the psychological benefits of seeing progress quickly, making it an encouraging way to decrease your debt. By changing your behavior and creating positive financial habits, you’re more likely to stay motivated.

2. Debt Avalanche

The Debt Avalanche method prioritizes debts with the highest interest rates. Here’s how it works:

• Focus on paying off the debt with the highest interest rate first while making minimum payments on the rest.
• Once the highest-interest debt is cleared, move to the next highest and so on until all debts are paid off.

This strategy can save you money in the long run by reducing the amount of interest you pay over time. While it may take longer to see results initially, the financial benefits are significant.

How to Decrease Your Debt

For most of us, debt is unavoidable. However, you can make wise decisions that will set you up for success when it comes to your financial wellness. Reducing bad debt and choosing carefully on good debt is crucial. So, even though debt is part of our everyday life, there are ways to limit and decrease your debt effectively. Here’s our tried-and-tested tips:

1. Budgeting

Creating a budget is the cornerstone of managing debt and living in financial freedom. A well-thought-out budget can:

• Help reduce credit card and unnecessary purchases.
• Prevent overspending.
• Free up money to pay off existing debts.

When you know exactly where your money is going and why, you’re less likely to fall into the trap of taking on new debt.

2. Avoid “Buy Now, Pay Later” Transactions

While enticing, these payment arrangements can quickly increase your overall spending. Examples include:

• Installment payments.
• Retail financing.
• Retail credit cards.
• Installment loans.

These transactions often come with fees, particularly for late payments, and can make big purchases even more expensive. Instead, save up for what you want (add it to your budget). Not only will you avoid interest and fees, but you’ll also experience the satisfaction of reaching a financial goal and stay debt free.

Why Decreasing Your Debt Matters

Managing your debt effectively is not just about interest rates. There’s so much more to it – from relieving financial anxiety to preparing for the future, you CAN reach your financial goals with peace and clarity, and good debt! Here’s why we think decreasing your debt is critical:

1. Protecting Your Credit Score

Future lenders evaluate your credit score when you apply for financing. Managing your debt effectively is essential to maintaining or improving your score. Debt impacts your credit score negatively in two ways:

• Missed payments can lead to a higher debt balance and a lower credit score.
• Maxing out credit signals to lenders that you may struggle to repay.

By reducing your debt, you’ll present yourself as a lower-risk borrower, increasing your chances of being approved for future loans or credit.

2. Reducing Stress

Debt is a significant source of stress. The journey to decrease it can make you feel empowered and give you peace of mind. With less debt, you can redirect your money toward other important financial goals, such as:

• Saving for your child’s education.
• Building a downpayment for your dream home.

3. Leaving a Financial Legacy

When parents pass away, their estate must cover outstanding debts before any money can be distributed to heirs. If debts outweigh the estate’s value, children or spouses may become liable for some obligations.

By reducing your debts, you ensure that more of your estate is preserved for your loved ones and other priorities.

Need Help Managing Your Debt?

Decreasing your debt doesn’t have to be a solo journey. At Wealthstack, you can create a personalized debt-reduction strategy that you can track on your one-of-a-kind Wealthstack Dashboard. Whether you’re curious about financial planning or want a hands-on demo of our Dashboard to track your progress, we’re here to guide you.

Contact us today to speak with a Wealthstack Expert and take charge of your financial future.