Is one of your New Year’s resolutions to reduce debt? Did holiday spending increase your credit card balances? You may find regaining control of your debts particularly challenging with today’s higher interest rates. But this three-step plan can help you bring them under control — freeing up money every month for other needs.

1: Itemize Your Debt

It can be scary looking at your total debt. But you’re not alone: The average American has more than $80,000 of debt, not counting home mortgages or home equity lending.¹ So take a deep breath and write down every account that has a balance. Include the interest rate, total balance, minimum monthly payment, due date, payment term (if applicable) and type of debt. This information will help you choose a sensible pay-down plan and stay on top of due dates.

2: Know Your Budget

Subtract your monthly expenses from your monthly income. Be sure to include both essential expenses (needs, including minimum monthly payments for your debts) and non-essential expenses (wants).

The difference between your income and expenses is the additional amount you can put toward your monthly debt payments. If you don’t have anything left, or if you want to increase the amount you have, take a close look at both your essential and non-essential expenses to see where you might be able to cut back. You can also look for opportunities to increase your income, such as working overtime or taking on a part-time job until your debt is under control.

If these changes aren’t enough, you may want to consider credit counseling. Parachute Credit Counseling, Inc., is a reputable non-profit organization that may be able to help.

3: Choose a Pay-Down Strategy

Assuming you’ve found additional funds in your budget you can use to pay down your balances, the next step is to decide on a pay-down strategy. Here are three popular approaches to consider.

• Snowball. This approach is intended to yield a quick win by paying off your lowest balance first. That’ll give you a sense of accomplishment and encourage you to stick to your plan. To follow this strategy, apply the additional funds you found toward this account. When it’s paid off, redirect your now expanded available funds toward the next largest balance. With this strategy, your available funds will “snowball” every time you pay off an account. By the time you get to your largest balance you should be able to pay significantly more toward it every month, making it easier to pay off.
• Avalanche. With this strategy you’ll work to increase the amount paid toward principal each month by paying off the account with the highest interest rate first. If you don’t have any small-balance accounts, but you do have one with a fairly high interest rate, this strategy may be the best one to use. Your payoff strategy gathers momentum as you pay off each balance, increasing your monthly payment toward principal as you go.
• Note: If you choose either the snowball or avalanche approach, you’ll of course continue making minimum monthly payments on your other accounts. Consolidate
• Consolidate balances. With this approach, you combine all of your outstanding balances into one new loan or line of credit, ideally at a reduced interest rate. This can reduce your total minimum monthly payment, increasing the funds available to pay down your debt. Many people use home equity financing to help them manage debt in this way, since it often has a lower interest rate compared to other forms of borrowing.

Be Patient and Enjoy the Payoff

Paying off debt takes time, so be patient and stick to your plan. You’ll enjoy peace of mind knowing you’ve gotten your debt under control, improved your financial health and freed up funds to achieve your longer-term goals.

If you’re interested in learning more about how you may be able to use your home equity for debt management, visit us online or call 1-888-253-0799.