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  • Writer's pictureHarry N. Stout

77- How to Improve Cash Flow: Better Manage Your Debt

Updated: Jan 15, 2021

As I write this post, interest rates for benchmark US Government debt securities are continuing to decline to historically low levels. At the same time, rates paid on short-term savings remain well below 1% at most financial institutions. While we all need to save money for an emergency fund and to have cash for our later years of life, we can’t lose sight of the major impact of debt service on our cash budgets. Let’s look at some ideas on what you can do to reduce your debt payments and improve your cash flow.

Consumer Debt Basics

Total consumer debt hit just below $4.2 trillion in November 2019 according to the Federal Reserve. Collectively, Americans owe 10 percent of their disposable income to non-mortgage debts like car loans, credit card accounts and student or personal loans.

When just focusing on credit card accounts, the average American consumer now has $6,194 outstanding, according to Experian. This is up from $6,040 in 2018. As of November 2019, the average credit card annual percentage rate interest charged on these accounts was 14.87%, according to Federal Reserve data with some rates much higher.

So when looking at just credit card accounts, the average American has over $6,000 in debt at an average interest rate of 14.87% or above. This equates to paying just over $1,000 per year in interest just for a credit card. This is a heavy cost to bear and has a major negative impact on monthly cash flows. This is without considering the payments needed for car loans, student loans and mortgages. In short, the impact of mandated debt payments on the average American household is staggering.

Ideas to Increase Cash Flow

Here are four easy to implement ideas to reduce debt costs and improve cash flow:

Fine Tune Spending to Increase Available Cash

To find extra cash to pay down debt, take a hard look at your spending and see where you can cut back. Finding $50 to $100 each month can really cut your debt costs. For example, do you really need subscriptions to all of the major streaming services? Can you better manage your clothing costs? Can you cut back on going out? These spending actions can put you on the track to debt reduction. I am not recommending that you stop drinking coffee or playing your favorite video game. What I am saying is take a cold, hard look at your spending habits and see what you can reduce. If you look – you will find areas for improvement.

Use Tax Refund to Pay Down Debt

This is an easy one. If you are getting a tax refund – take a large portion of it and pay down your debt. Sure, take part of the refund and do something you enjoy, but don’t lose sight of the reality of your debt situation.

Repay Credit Cards Faster

If you are able, make your credit card payments prior to the due date to save interest. For example, if you are making $200 per month in extra debt payments make a $100 payment every two weeks. The way interest is calculated on the outstanding balance owed making the payment early will reduce interest costs.

Refinance Obligations

Refinancing debt should have the objective of lowering the interest rate you pay and the amount of monthly payments. With interest rates heading lower, now may be the time to refinance to get a better rate. Also, if your credit score has substantially improved you may be able to lower your payments as a result of your financial discipline. Refinancing considerations are different for mortgages, car loans, student loans and credit cards. You will need to do some research on the differences for each type of loan.


Debt is the number one budget killer for most Americans. Monthly interest and principal payments drain valuable cash that could be used to save for the future or pay for the fulfilling things in life such as travel. To reduce the impact of debt on your individual budget takes focus and discipline. The sooner you begin this journey the sooner you will lessen this financial burden.


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