The Cost of Living Crisis and Your Debt: Frugal Strategies for Loan Repayment in 2025

People around the world are experiencing a cost-of-living crisis right now. Essentials have grown more expensive while wages stagnate, and people are falling deeper into debt. In these situations, debt management and loan repayment is crucial. It’s a bit of a challenge but entirely doable with creativity and discipline.

How the Cost of Living Crisis Affects Your Debt

The cost-of-living crisis affects nearly everything, especially your ability to pay your debts. While struggling to pay your bills and buy groceries, repaying your loans might be the last thing on your mind.

A recent poll found that two-thirds of Americans worry about their finances, and three-fourths of the population find their incomes aren’t keeping up with the inflation rate. Many people have to find additional jobs to support themselves and their families. 

Exploring Debt Repayment Strategies: Snowball vs. Avalanche Method

Creating a debt repayment plan often involves one of two popular strategies:

• The debt snowball method is a strategy for paying off your smallest debts before moving on to the bigger ones. It allows you to pay off some debts sooner, which gives you a sense of accomplishment. 
• The avalanche method has an opposite mechanism. This strategy involves prioritizing the debt with the highest interest rate. You pay the minimum amount for all your debts, and then put any extra money into the high-interest bill. It might take longer to pay off all your debt, but this method helps you save money on interest rates.

Both methods are effective in paying off loans. Choose one that motivates you the most and fits your financial goals.

Budgeting and Financial Management Techniques for Easier Debt Management

These strategies can help you better understand your finances and find ways to repay your loans while caring for yourself.

1. Avoid Incurring More Debt

Avoid taking on more debt, especially high-interest or payday loans. Focus first on following a budget and paying off your existing obligations. This approach might be uncomfortable, but if you’re worried about your debt, it’s probably unwise to add more.

2. Consider Debt Refinancing

One exception to taking out loans during your debt repayment journey is refinancing. Refinancing refers to revising an existing loan’s terms or taking out a new loan to replace the old one, often with lower interest rates.

3. Pay Off Bills Before Spending

Once you receive your pay for the month, prioritize your bills. Aside from rent, utilities and groceries, set aside your loan payments according to your chosen debt repayment strategy. Make sure to at least make the minimum payment for your loans each month to avoid credit score penalties, further interest charges or late fees.

4. Create or Update Your Budget

A 2023 Nerdwallet report found that 84% of Americans overspend, mainly through credit cards. A budget can help you avoid spending too much, especially if you’re on a loan repayment journey. List your income in one column and your expenses in the other. You can then group your expenses further into essentials and non-essentials. Your debt payments should be in the essentials category. 

Keep things simple, especially when you’re new to following a budget. As you understand your needs better, you can review and update your approach.

5. Cut the Nonessentials

After identifying the nonessential expenses in your budget, see what you can live without. Are there any subscriptions you don’t use anymore? Do you spend a lot of money dining out? If you’re trying to achieve debt-free status, every penny matters.

6. Negotiate Your Loan Repayment

If you struggle to keep up with your loan repayments, consider negotiating for a more favorable arrangement. Many lenders are open to adjusting repayment plans, like lowering your interest rate or adjusting the loan term. Reach out to your lenders and tell them about your financial situation. Establishing this understanding can help you develop a better payment plan for your circumstances.

Building Financial Resilience

It is incredibly challenging to go through a debt repayment journey while experiencing a cost-of-living crisis. In these situations, being strategic and intentional with your money is crucial. Take the time to assess your situation, create a game plan and motivate yourself by working toward and celebrating each win.