THE FIRST STEPS YOU MUST TAKE TO GET OUT OF DEBT
Let’s admit it, chances are you have some amount of debt if you are reading this. That’s a great sign that you are aware and engaged in your financial health. You may even be ready to take steps to minimize your debts and learn how to make positive financial choices and strengthen your financial foundation. Instead of dwelling on how you got here, focus on finding a debt-reduction strategy that can work for you. Any step you take to lower your debt no matter the source (credit card, student loan, car payment, etc.) can help you be smarter in your approach when deciding to take on any future debt.
- Cut Down Your Spending
You may want to eliminate your debt, but if you are still accruing additional debt it will be incredibly difficult to get a handle on your payments. It may take some soul searching understand why you’re overspending, but it will be the best investment you can make.
Instead of dwelling on how you got here, focus on finding a debt-reduction strategy that can work for you.Click to tweet
- Pay more than the minimum balance
When you pay a credit card bill, you’re paying two items: the principal, the amount you actually spent or borrowed and the interest, an added percentage of the amount you have left. Interest can range from 3% to 30% depending on your credit and type of debt. When you pay more than the minimum balance the extra will go toward the principal and lower the amount of interest you pay over time, this also shortens how long you have to pay the loan.
- Determine the payoff date
Understanding how long it will take to payoff your debt will not save you money in and of itself, but psychologically you feel like you have more control. If you plan to pay more that than the minimum balance you’ll be aware that you’re beating the target date and you’ll feel the confidence boost of achieving a goal. Or, if you can’t manage to make the extra payments, you’ll have the comfort of crossing off a month from the total period it’ll take to pay off your balance. You already do this when you binge watch on Netflix, tell me you’ve never said this? “Okay, 24 episodes, 2 episodes a day…I can finish Season 2 in 12 days!”
- Invest your tax return
There are many ways you can spend your tax return, a nice vacation, a shopping spree, or something else you’ve been saving up to purchase. Usually coming across extra funds requires extra work, so investing your tax return could actually be the easiest way to make a dent.
- Pay off the highest interest rates first
Between student loans, credit cards, and car loan payment, it can be confusing on where to start and determine what account you should prioritize. For most people, they prefer to get rid of the debt as fast as possible and pay less overall. If this sounds like you, pay extra to the account with the highest interest rate. It may not seem like it’s helpful at first, but when you do the math it adds up!
While none of these steps are a magic pill that will make all your debt disappear, with time, diligence, and spending less than you make, you’ll be able to make great strides in improving your financial health.