Tips to help you pay off debt and save money
The thought of paying down debt may seem overwhelming, but our tips can help you get on the path of saving more toward your goals.
Monthly debt payments can challenge your budget and make it difficult to save. And high interest rates and lengthy repayment terms can make it impossible to wipe out debt quickly. Do these types of challenges have you worried about your financial well-being?
If so, you’re not alone. According to Nerdwallet, the average debt per U.S. household is more than $152,000.1
If you fall into any of these categories, don’t be discouraged. It is possible to regain confidence in your financial future.
Review these tips to learn how to pay off debt and free up money to save.
|Average debt per U.S. household|
|Credit cards (revolving)2||$6,913|
|Any type of debt3||$152,612|
How to create a debt payoff plan
Swap high-interest debt for lower-cost loans
In today’s environment, the interest you pay on debts — especially credit cards — typically exceeds what you could earn on savings. So it makes sense to focus on paying down these accounts to get ahead of the debt curve. Consider replacing high-interest debt with low-interest loans to help reduce costly finance charges. Then you can use any extra dollars you save or proceeds you receive to pay down existing debt.
Consider a home equity line of credit
A lower-interest option to consider is taking out a home equity line of credit. A home equity line of credit allows you to take the equity in your house and use it for other purposes. Once your line of credit is established, you can access the funds to pay down high-interest debt.
For example, if your home equity line of credit has a fixed rate of 7% and you use those funds to pay off other debts, including a credit card balance with an 18% variable rate, your savings would be substantial. Plus, unlike credit card interest, the home equity loan interest may be deductible if you itemize your deductions on your tax returns.
One additional benefit: you only pay interest on the amount of the credit line that’s used. For example, if you have a $30,000 credit line but only used $10,000, you will only pay interest on the $10,000 amount. Keep in mind that home equity loans can be set up with either a fixed or variable rate. Each offers certain benefits, so weigh both options to determine which is best for you.
Renegotiate with lenders
You might be surprised to discover how flexible some creditors can be. Mortgage terms can be renegotiated and credit card rates lowered. Sometimes all you need to do is ask. If you’re unable to get the creditor to budge, take your business elsewhere if you can. You may also want to look into debt consolidation plans.
How to save more money
Develop a spending budget
While most people know how important it is to have a budget to track expenses, many don’t have one. Without realizing how much you’re spending each month, "small" expenses can add up. Creating a written budget for your household can help you gain control of spending and identify areas where you can save.
For example, cutting back on extras such as unused subscriptions and gym memberships may seem like a small step, but the benefits can add up. Determine where you can free up money and, if you have other members in your household, make sure they’re on board too.
Consider automating your savings
While applying the tips above can help you can save more, you may want to consider these additional options:
Automatic contributions to employer-sponsored savings plans. One of the easiest ways to save is by contributing to an employer-sponsored savings plan, such as a 401(k). Any amount you invest is automatically removed from your paycheck, making it seamless and simple to manage. Consider investing at least enough to receive the full employer match or you could be missing an opportunity to add that money to your account.
Systematic deposits to savings accounts. There are other simple ways to ensure you consistently save. First, take steps to cut down on your expenses so you can set aside extra money. Then, set up automatic transfers on a weekly or monthly basis to your account.
Connect with an advisor for personalized advice
By managing costs and indentifying sustainable saving opportunities, you can succeed at reducing your expenses so you have more money to pay down debt and build your savings. For personal recommendations on how you can pay down debt, an Ameriprise financial advisor can offer advice unique to your situation.
Or, request an appointment online to speak with an advisor.
At Ameriprise, the financial advice we give each of our clients is personalized, based on your goals and no one else's.
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1Source: Nerdwallet (American Household Credit Card Debt Statistics: 2020)
2The credit card debt figures in this chart represent revolving credit card balances — those that are carried from month to month — rather than all credit card balances. Total U.S. credit card outstanding debt stands at $895 billion as of June 2021, which includes both revolving and transacting balances. (American Household Credit Card Debt Statistics: 2020)
3This debt can include mortgages, home equity lines of credit, auto loans, credit cards, student loans and other household debt, according to the Federal Reserve Bank of New York. (American Household Credit Card Debt Statistics: 2020)