Household debt is the total debt of all people in a household. It includes all types of debt, including mortgages, car loans, credit card debt, and student loans. According to the Federal Reserve Bank of New York, the U.S. currently has over $14 trillion in household debt. While mortgages represent more than 70% of this debt, the next largest categories include student loans, auto loans, credit cards, and other loans.
Impact of the pandemic on household debt
The Federal Reserve Bank of New York issued a report that showed a decrease of household debt from $34 billion to $14.27 in the second quarter of 2020. This is the first decline since 2014 and the largest decline since 2013. It’s thought that the lockdowns and social distancing orders that began in March 2020 due to the pandemic contributed to this significant reduction in household debt because it forced Americans to spend more time at home and cut back on spending.
Government pandemic relief programs like the stimulus checks and extra $600 a week in extra unemployment benefits could have played a role, too as many Americans used the extra money to pay down their debt.
Are you one of the households that paid down debt? If not, should you be? Here is more information to help you understand and better manage your household debt.
Ways to manage your household debt
If you are not part of the group that cut debt in 2020, you should know that household debt could prevent you and your family from meeting your short and long-term financial goals. This is particularly true if you have excessive amounts of it. If you’d like to buy a house, retire, fund college, or even travel, taking control over your debt is essential because the less debt you have, the more cash flow you may have to put towards living the life you want.
Here are some large and small ways to help manage your household debt:
- Eat at home: Dining out can cost you a lot of cash that could better be used toward your debt. To motivate your family to eat a home more often, find new recipes, try new foods, explore unique cuisines, and prepare old family favorites. Bonus: Cooking with your kids can have additional developmental and health benefits.
- Downsize: Housing is likely your largest expense. If you’re renting, consider moving to a more affordable space. If you own your home, your mortgage should not exceed 28% of your monthly income. If it does, a smaller home may allow you to make some serious headway on your debt, relieving stress on your paycheck and on you.
- Try out a “no-spend month:” A “no-spend month” is when you don’t spend money on anything other than the essentials you need to survive for an entire month. You can use the cash you save to help pay down debt.
- Learn to say “no:” If your friend invites you out for a fancy dinner or your child requests that you buy them a new toy, don’t be afraid to say no. Getting into this habit will help you to allocate more of your hard earned money toward debt, necessities and key goals, like saving for college.
- Ensure everyone is on the same page: When it comes to tackling household debt, you can’t act alone. It’s important that your partner, children, and others in your household are on board as well. Have a household meeting and come up with a game plan of how you’ll work together to meet your goal.
How to stay motivated when paying down household debt
The key to managing your household debt long term is motivation. You may find that you’re very dedicated to the process at first, but eventually lose your momentum. The good news is there are ways you can stay motivated and keep your morale high, including:
- Write down your financial goals: Sit down with your household and write down all of the financial goals you hope to achieve once you become debt free. Hang up this list on your fridge, bathroom mirror, or anywhere else you’ll see it often.
- Treat your household: Every time you meet a small goal like paying off $1,000 or sticking to your monthly budget, reward your household. Order a meal from your favorite restaurant, have a movie night, or splurge on a gadget you can all enjoy.
- Find an accountability partner: If you know someone else who also wants to control their household debt, make them your accountability partner so you can support one another in your journeys. You can schedule weekly or monthly virtual or in-person check-in meetings with them.
Ready to reduce your household debt? We can help.
If you’re overwhelmed with household debt, a debt relief program life Freedom Debt Relief may make sense. To learn more, talk to a Freedom Debt Relief Certified Debt Consultant. They’ll help you find out if you qualify or offer valuable information on other options you can use to become debt free and set yourself up for a healthy financial future. Get started now.
- Why Dealing with Debt Isn’t as Scary as You Think (Freedom Debt Relief)
- Balances at a Historic Low: Time to Get Credit Card Debt Under Control (Freedom Debt Relief)
- Unemployed? Here’s How to Keep Managing Your Credit Card Debt (Freedom Debt Relief)
- Household Debt Overview (The Federal Reserve System)