First Midwest BankFirst Midwest Bank logoArrow DownIcon of an arrow pointing downwardsArrow LeftIcon of an arrow pointing to the leftArrow RightIcon of an arrow pointing to the rightArrow UpIcon of an arrow pointing upwardsBank IconIcon of a bank buildingCheck IconIcon of a bank checkCheckmark IconIcon of a checkmarkCredit-Card IconIcon of a credit-cardFunds IconIcon of hands holding a bag of moneyAlert IconIcon of an exclaimation markIdea IconIcon of a bright light bulbKey IconIcon of a keyLock IconIcon of a padlockMail IconIcon of an envelopeMobile Banking IconIcon of a mobile phone with a dollar sign in a speech bubbleMoney in Home IconIcon of a dollar sign inside of a housePhone IconIcon of a phone handsetPlanning IconIcon of a compassReload IconIcon of two arrows pointing head to tail in a circleSearch IconIcon of a magnifying glassFacebook IconIcon of the Facebook logoLinkedIn IconIcon of the LinkedIn LogoXX Symbol, typically used to close a menu
FDIC-Insured - Backed by the full faith and credit of the U.S. Government
Smiling young black woman writing in notepad and holding mug of coffee
Get Insights

Get monthly ideas delivered right to your inbox.

Subscribe for Insights

For Your Life Jordi Lippe February 20, 2024

5 Tips for Making a Dent in Your Debts in 2024

Ah, a new year! It's that time again when we're all buzzing with resolutions, and for many of us, improving our personal finances is at the top of the list. This is especially true for tackling one of the most common challenges we face: managing our debts. Let's face it, debt can sometimes feel like a never-ending spiral, but it doesn't have to be that way. With a little bit of strategy and a lot of determination, reducing debt is not just a dream -- it's a goal we can achieve.

Think of debt as a puzzle that needs solving, not a shadow that follows you around. It's all about having the right approach and tools. And the good news? This year could be the year you turn things around and get a firm grip on your finances. Let's dive into five actionable and practical tips to help you chip away at that daunting debt mountain and start your journey toward financial freedom in 2024.

1. Revise your budget

Revising your budget is an essential step in tackling debt. Richard Barrington, an analyst for Credit Sesame, emphasizes the importance of aligning your spending with your income. This involves identifying and cutting unnecessary expenses to prioritize debt repayments.

When reworking your 2024 budget, ensure that debt repayments are treated as non-negotiable expenses. This disciplined approach to budgeting helps prevent the accumulation of new debt while steadily reducing existing debts. Sacrifices made today for debt repayment can lead to significant financial freedom in the future.

2. Discover hidden passive income sources

Veetahl Eilat-Raichel, the founder and CEO of Sorbet, points out a commonly overlooked opportunity: uncovering passive income sources. She suggests that many individuals are unaware of potential income streams available through their employee benefits package. Delving deep into the specifics of your FSA, HSA, 401(k), and PTO policy can reveal "untapped perks."

For instance, some companies offer unique benefits such as subsidies for public transportation using pre-tax dollars. Additionally, understanding the monetary value of unused paid vacation days can be enlightening. If your salary includes unused vacation days, converting these into a cash equivalent can provide extra funds to alleviate debts. Veetahl encourages seeing your total compensation package through "money-colored glasses," urging a reevaluation of traditional views on benefits and compensation.

3. Use the snowball or avalanche method

When faced with multiple debts, how you tackle them can significantly affect your overall interest payments and debt clearance speed. Richard Barrington recommends organizing debts by interest rate, first paying off those with the highest rates. This strategy, known as the avalanche method, minimizes the total interest paid.

Alternatively, the snowball method, where you pay off smaller debts first for psychological wins, can also be effective. Choosing between these methods depends on your personal financial situation and motivational needs, but both approaches can accelerate the journey toward being debt-free.

4. Consolidate debt to lower your interest rate

Debt consolidation is a strategy that can simplify debt management and potentially reduce the interest you pay. Barrington explains that transferring balances from high-interest debts to lower-interest options, such as personal loans or balance transfer credit cards, can provide financial relief. This approach consolidates various debts into a single payment, often with a lower interest rate, making it easier to manage and pay down your debts more quickly.

5. Negotiate your debts

In situations where full repayment is challenging, negotiating with creditors for a settlement can be a viable option. This approach involves agreeing with the creditor to pay a reduced amount, considered as full debt repayment. While this can negatively impact your credit score, it can also provide a more achievable path to clearing your debts, especially in cases of financial hardship. However, it's important to approach this strategy cautiously and possibly seek advice from a financial advisor.

Reducing debt is not just about crunching numbers but changing how you think about money. Sure, it'll take some effort, but imagine the freedom you'll feel when you're debt-free. 

 

This article was written by Jordi Lippe from The Motley Fool and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.

Subscribe for Insights

Subscribe