5 ways to cut debt in 2023

If you're looking for a New Year's resolution this year, then consider one that will help you long-term: cutting debt. 

Doing so not only relieves obligations but also can free you up to use your money elsewhere and help you meet other financial goals you're likely setting in 2023. By cutting debt, you can put more money into areas like investments, donations and savings for a rainy day.

You can start by consolidating your debt into a more manageable loan now. 

5 ways to cut debt in 2023

How do you go from setting the goal of reducing or eliminating debt to actually accomplishing this New Year's resolution? There are many ways to do so, which can vary depending on your debt situation and financial preferences. Some of the more popular methods include the following:

Debt consolidation 

As mentioned above, to cut debt, you might find that combining your liabilities helps, such as with a debt consolidation loan. Not only can that make it easier to stay on top of your debt by managing fewer liabilities at once, but it might help you save money on interest payments, depending on the terms of the debt consolidation loan.

If you can pay less interest, you can reduce the total lifetime payments and potentially finish repaying the debt sooner. 

You can get a free savings estimate from National Debt Relief by clicking here.

Review insurance coverage

Another way to cut debt is to look for savings opportunities, which then frees up cash to pay down debt faster. One way you might be able to save money without making any big sacrifices could be to review your insurance policies.

You might find that you have more coverage than you need, for example, or you might be able to work out better terms with your insurers. Perhaps you drive less than when you first obtained auto insurance, in which case you might be eligible for lower premiums. Or maybe there's an opportunity to bundle policies with the same insurance provider to save money. You also may have the wrong life insurance policy, which could be causing you to pay more than you need.

Get a free price estimate from Ladder here to compare against what you're paying now.

Improve your credit score

Racking up debt can sometimes hurt your credit score, but if you work on improving it, that can lead to less debt. For example, with a higher credit score, you might qualify for better terms on a debt consolidation loan, thereby helping you lower interest payments so you can pay the principal on your debt faster.

Using credit monitoring services could help you figure out what your credit score looks like and find ways to improve your credit score.

Making on-time payments consistently is typically a very important factor. But you also might find more personalized recommendations, depending on your situation, like lowering your credit utilization rate, such as by not putting as much on your credit cards every month.

Get your Experian credit report and FICO score here to see how you would look to a lender.

Refinance your mortgage 

If you have a high interest rate on your mortgage, you might be able to cut debt by refinancing. If you can obtain a lower interest rate, you could ultimately pay less over the course of the loan, though that depends on the interest savings outweighing initial refinancing costs.

Even if you can't refinance to a much lower interest rate or come out ahead after refinancing costs, you might be able to benefit from refinancing in other ways, like if it helps you drop private mortgage insurance (PMI).

Generally, you can drop PMI once you have 20% equity in your home, but that value might be based on your original purchase price with your current lender.

So, if your home has appreciated in value, you might be above 20% home equity already and can refinance to then get rid of PMI costs. Then, you could pay down your mortgage faster or use the savings however else you want.

Answer a few quick questions here to find out if a mortgage refinance is right for you.

Refinance student loans 

If you have student loan debt with high interest rates, you also might be able to cut your debt by refinancing.

Keep in mind though that if you refinance your government student loans with private loans, you could lose some government benefits, like potential loan forgiveness or loan payment relief periods. But if you already have private student loan debt, then you might be able to lower your monthly payments if you can obtain a better interest rate.

You can easily check what student loan refinance rate you're eligible for here.

The bottom line

Taking these types of approaches to cut debt can help you save money long-term and relieve stress by reducing liabilities. The best ways to cut debt in 2023 and beyond can vary based on factors like how much debt you have and who your lenders are. In general, however, taking these types of steps can help you get your debt under control.

And as you save money on interest payments and eventually pay off your loans, you can often focus more on meeting other financial goals, like saving for retirement or helping your kids avoid student loan debt of their own.