Despite harsh economic times, most of us are paying heavy loan interest on debts every month. Ranging from student loans to house mortgages, loans on consumables, medical bills, and credit cards,  the list just keeps getting longer. Sometimes, taking out a loan for almost everything becomes a habit. Using your credit card for bad credit is not an advisable way to go about meeting your needs as you’ll end up neck-deep in debt if you don’t manage your loans intelligently.

According to the Experian report of 2020, the average total amount of debt owed by the common man in America is around $$92,727. 

So how do we break this vicious habit? This article will discuss the various ways to manage your finances and smoothly sail out of debt.

Cut Down on Taking Debt

Isn’t this the simplest way to eliminate a never-ending debt cycle?

Cut down on taking loans.

By reducing the habit of using credit cards or taking loans, you can reduce your avenues of debt creation. You could even try freezing your credit if you’re too deep in financial stress. This step ensures that the temptation of making bizarre purchases is offloaded from your shoulders.

If you find this challenging, here are some tips to curtail your purchasing:

  • Do not carry your credit card to the market.
  • Put a stipulated amount in an envelope and use that amount only for purchases.
  • If possible, try limiting your living expenses. Shift to a frugal lifestyle to save more.

Pay Your Bills

Paying your bills is often an underrated way out of a financial debt crisis. Make a budget and stick to it. All your purchases must be value for money spent on necessary regular-use items. If you’re wondering how to go about this, here’s how. 

  • Get all the bills accumulated in one place. 
  • Start by segregating the bills in order of priority. Bills of essential items like electricity, water, and other base expenses should be the highest priority.
  • Offset these expenses in terms of urgency, taking caution not to step outside your expense list.

However, if your income is consumed by paying these bills, you must make certain changes to your expense structure. Cut back on your lifestyle expenses, stop spending on luxuries, downsize, or get a passive source of income. Design a carefully thought plan and then proceed.

Make a Structured Repayment Plan

Create a structured debt plan to determine which bills you must pay first. Finance experts advise that it is wise to pay your high-interest rate bills first to avoid accumulating more debt. These purchases should no longer figure in your financial sheets. Then comes the low-interest bills that are non-deductible. In the end, pay your tax-deductible bills. This financial management method is called the ‘avalanche’ method of debt repayment. Economically, this is a systematic and sound way of paying your debts.

Alternatively, you can list your debts, starting from the smallest amount to the highest. Then, start paying the petty bigs and gradually proceed to clear the more significant debts. This is called the ‘snowball’ method. These little payments will start rebuilding your confidence to pay back the rest of the debt.

Evaluate Your Credit Report

Have you analyzed your credit report? What are your areas of most lavish spending? Monitor the discrepancies in your financial statement and work on improving these areas. Obtain the detailed report from the Credit Bureaus, including Equifax, TransUnion, and Experian. You can get your credit report status for free only once a year.

Evaluate your credit report to ascertain the areas where the big chunk of expenses are originating from. It’s, therefore, imperative to note that if you default on even two loan payments on consumer loans, the banks/ financial institutions will switch your loan account from green to red. Also, if your payments get delayed on multiple accounts, you will come in the ‘high-risk’ category.

Sometimes, banks put you in the ‘high-risk’ category even if you are paying your loans. This may be because you are late in paying your debts. However, as many people could default on debt payments, banks must take strict steps.

Create an Emergency Reserve

Start saving to build an emergency reserve where you put in some monthly surplus. This seems unlikely in a crisis where you are already trying to come out of debt. However,  you have to start early to create this backup fund.

The savings in your emergency reserve can be a great relief when you’re pulled down by debt. You can use this fund to pay your expenses and clear some of your debts.

Ask for Lower Interest Rates 

 If you opt for a loan with a high-interest rate, you will naturally take longer to get out of debt. If you’re paying higher interest rates, you might be unable to repay the loan. In this case, you can ask your lenders to lower the interest rate. If you have a solid repayment history, your creditor should not see a reason for declining your request. Creditors use their discretion to judge interest in debt reduction situations.

You can also speak to a credit counselor who might suggest some executable tips to improve your repayment options. Then, fix a meeting with the creditors and do thorough homework. Check your documents. Explain your predicaments to the financial institution and your repayment plan to prevent a default. 

 If they are convinced, you might be granted a lower interest rate on the loan balance amount. Try paying your loan before the expiry date. If you fail to do so, the lenders will again charge you a higher interest rate.

Alternative Credit Options

If you have access to another credit arrangement that commands a lower interest rate, you could opt for it. These credit lines have considerably lower interest rates and could help pay higher interest amounts.

Using a line of credit is not very encouraging as it could become a habit. Most people have been known to misuse it to spend more than they can afford. Use this option only when there is no other option of payment.

Increase Your Monetary Resources

You need to increase your earnings if you cannot come out of your financial debt even after applying the above means. This could mean changing jobs, applying for a promotion, or looking for a passive income alternative to earn extra money to pay your debts. You could also start a business from home, work extra hours, or sell an expensive item to pay your loans. Once all your loans are paid off, cut down on lavish expenses, and concentrate on building some savings. Apply alternative methods of staying out of debt.

Damage Control

When you’re neck deep in debt, start by paying off the high-interest accounts. Then, if possible, double your payments to clear your debts quickly. Once these debts are paid, proceed to clear the next most urgent category of loans.

If you keep your expenses under control, you will be in a better position to clear loans quickly – especially the extra costs on clothes, luxuries, dining out, and other miscellaneous expenses. When you’re in debt, these are unnecessary costs that increase your loan amount. Once you start paying your debts, your credit rating will improve and help you increase your credibility. Displaying a better reputation in front of lenders might lower your interest rate for the remaining amount.

Key tips for cutting down on credit card expenses and debt:

  • Pay from your balance credit card amount at the end of each month to keep the credit card debt under control.
  • If there are multiple credit card debts, start by paying the one with the highest interest rate.
  • Try not to miss any payments, and clear them within deadlines. Missing even one payment impacts credit rating.

 Why Credit Card Debt is Not a Good Idea

According to a 2020 Capital One study, more than half of Americans remain stressed over how to pay debts and save for future investments. The stress could be lethal to your health, leading to major diseases, affecting heart health, and causing sleep issues. The overload of unpaid bills could also add to your anxiety levels and lead to stress-related mental illness. This stress, in turn, hinders the process of saving or making sound investments.

Having your financial papers free of debt gives you self-confidence. You will try to seek better work opportunities and get the much-needed post-pandemic lifestyle adjustment. Whether you opt for the avalanche method or the snowball financial management technique, just make sure you pay your debts on time.


Never overspend using your credit card as it leads to debts or bad credit. With the rising household expenses, most people are tempted to pull out sums from their life insurance policies and retirement schemes to pay back debts. This could be a temporary solution to this problem, but you could be issued more tax or might deplete your insurance policy/retirement reserves.

If you’re unable to repay your debt for a long time, creditors and banks may agree to a settlement. They might ask you to settle the loan with a one-time payment plan less than the actual amount. Ultimately, the best solution is to avoid misusing your credit card (or savings) and control your credit card expenses.