Debt can be a burden, demanding financial resources you could be using towards savings or buying things you really want. Eliminating debt frees up your money each month, but how can you pay it down?
These tips for paying down debt can help you design a plan to get rid of debt and start building toward a strong financial future:
Put an end to your credit use.
It’s almost impossible to pay off your debts when new debt keeps making its way into your budget. One of the best first steps you can take towards debt elimination is to stop using credit. Make it a rule to pay cash for what you need, and remove temptation by removing cards from your purse or wallet.
Make a debt reduction plan.
The snowball method is a good place to start. Organize your debt from the lowest to the highest balance and begin paying off the lowest balance. By quickly paying off the smallest balance, you build momentum and make resources available for your next targeted payoff. Continue paying off and re-focusing your available cash until all of your unsecured debt has been eliminated.
Start saving.
A rainy day fund is essential if you want to keep debt at bay. When you have little or no savings to fall back on, you’re more likely to accumulate even more debt in an emergency. It’s important to start saving today, even if you have debt to pay off.
Setting savings goals makes saving easier and more rewarding. Goals like paying cash for new furniture or your next vacation help you make spending choices that allow you to save. A chart or graphic that reminds you of your progress also encourages you to stick to your plan.
Consolidate high interest debts.
Although it’s usually best to pay off your credit card and other unsecured debt without opening up a new line of credit, there is one exception to this good advice. If you hold several debts that each have a high interest rate, it may be be best to consolidate your debts and make just one monthly payment.
Your payment may be lower, but the big savings comes in interest. Instead of paying each of your creditors a large interest payment each month, a consolidation loan allows you to make just one payment to one creditor. A consolidation loan can also be part of a good payoff plan, especially if you can afford to make regular principal reduction payments.
Live within your means.
Clever marketing campaigns that encourage you to spend more than you can afford can make it challenging to stick to your no-new-debt plan. You can beat the temptation and live within your means by developing a livable budget. If you are new to budgeting, search the internet for a good template and tips.
Eliminating debt is a smart financial goal and will help you free up hard-earned money. Use these tips for paying down debt to help you get a good start.
Jillian Taylor-Mancusi, LIT
