You might want to reduce debt in 2023 as a New Year’s resolution this year if you’re looking for a resolution that will prove effective over the long term.
Cutting debt not only relieves you of your obligations but can also help you save for the future and meet other financial goals you’re likely to set in 2023. By cutting debt, you can invest more money, donations, and savings for the distant future.
2023: Debt Reduction Tips
To achieve your New Year’s resolution of reducing or eliminating debt, you must know how to do it. Many ways to accomplish this can vary depending on your debt situation and financial preferences. The following are some of the most popular methods that can be used:
Consolidating Debt
The idea is that to cut debt, you can combine your liabilities, such as with a debt consolidation loan, to get better results. By consolidating your debt, you’ll not only be able to manage fewer liabilities simultaneously, but you’ll also be able to save some money on interest payments, depending on how the debt consolidation loan is structured.
To reduce debt in 2023, you may be able to reduce the total lifetime payments if you can reduce the interest rate.
Review Your Insurance Policy
You might be able to save money by looking for savings opportunities which will then free up cash to help you pay down your debt faster. If you review your insurance policies, you might be able to save money without making any sacrifices and possibly even save a lot of money.
There is always the possibility that you may find that you have more coverage than you need or that you will be able to negotiate better terms with your insurer. You may be eligible for lower premiums if you drive less than when you first acquired auto insurance. Or maybe there is an opportunity for you to bundle your insurance policies with one provider to save money. Also, you may have the wrong life insurance policy, which may cause you to pay much more than you should.
Improve your credit score
If you improve your credit score, you can reduce debt, but sometimes it hurts your credit score. With a higher credit score, you might get a better interest rate on a debt consolidation loan, allowing you to pay off your debts faster with lower interest payments.
By using credit monitoring services, you might be able to figure out what your credit score looks like and find ways to improve your credit score as a whole.
Generally, ensuring you pay your bills on time consistently is very important. However, depending on your current financial situation, you might get more personalized recommendations, like lowering your credit utilization rate, such as not using your credit cards as much as you normally would every month.
Getting a mortgage to refinance
Refinancing your mortgage can be a good option if you currently have a high-interest rate. If you can obtain a lower interest rate, you could ultimately pay less throughout the loan, but that depends on the interest savings outweighing the initial refinancing costs.
In many cases, you may benefit from refinancing in other ways, even if you cannot refinance to a much lower interest rate or come out ahead after refinancing costs, such as if you can drop your private mortgage insurance (PMI).
It is common for you to be able to drop PMI after you have 20% equity in your home, but this value might be based on how much you paid for the home with your current lender when you purchased it.
Depending on your home’s value, you might already have above 20% equity in your home and can refinance to eliminate PMI costs. Then, you could pay down your mortgage faster or use the savings in another way.
Student loan refinancing
If you have student loan debt with high-interest rates, you may also be able to reduce your debt by refinancing your student loan debt.
Although it is important to note that if you refinance your government student loans with private loans, you might lose out on some government benefits like potential loan forgiveness and loan payment relief periods if you refinance your government loans with private loans. The good news is that you may be able to lower your monthly payments if you already have private student loan debt.
Conclusion
These approaches to cutting debt can help you save money long-term and relieve stress by reducing liabilities. Depending on factors like how much debt you have and who your lenders are, you may need to take different approaches to cut debt in 2023 and beyond. However, you should be aware that taking these steps can help you control your debt.
In addition, as you save on interest payments and eventually pay off your loan balance, you will often be able to spend more time on other financial goals, such as saving for retirement or helping your children to avoid having student loan debt in the future.