Personal Finance Tips: Death to Debts
Dealing with debt is stressful and can be incredibly overwhelming. The discrepancy between money owned and money owed can cause feelings frustration, fear or shame.
And, often the outlook is that the problems cannot be resolved. Yet, it is possible to be out of debt once there is a plan and a resolution to stick to it.
We are aware that every situation is different and so with our five tips we hope you can find the best way to deal with your debt.
Five Tips for Dealing Debt
Make a Debt List – Did you flinch? Don’t, it is important to know the exact amounts owed and to whom. Due dates should also be noted. So, take a deep breath and create the list, noting all debts in order of priority.
Create a Budget – This may seem an overwhelming task but it is a necessary one. In order to begin repaying it’s important that you know how much you can allocate to your individual debts.
Revise Spending Habits – Now, this calls for honest assessment. Cutting back on luxuries will help you to free up some cash. A suggestion is to do packed lunches. It may mean getting out of bed a little earlier to prep, but in the long run, it will be worth it.
Snowball Your Debts – Debt snowball is a strategy that is usually employed for paying off credit card debt. However, the principles can be applied to other types of debt. Using the debt list created, begin making payments to the smallest balance first while making minimum payments on all other debts. When that balance is paid off, put its payments toward the next smallest figure owed. This new amount will be added to the minimum figure you were paying. The process is repeated until balances are paid off. You’ll notice more of your funds are freed up as the ‘snow ball’ grows, knocking off each debt.
Avalanche Your Debts – We didn’t count incorrectly. This is an alternative to snowballing. It’s the same principle with one difference. List your debt in order of interest rates and not balances. Begin making payments on the debt with the highest interest rate first, while paying the minimum on other debts. Once that has been repaid in full put the monies to the debt with the next highest interest rate.
Start Saving – It may seem impossible now, but it is not. Begin small and increase as you begin to clear your debt. The goal is to create an emergency fund for when something unexpected happens. Once you’re free of debt, save 10% – 20% of your income. However, at present those percentages may seem like a joke, so begin with an amount that can be achieved each month. As the local saying goes: “One, one dutty build dam.”
There we go. Combine or choose from any of the five listed above to get started. You can annihilate your debt, only stay positive and stick to your plan.
Consult a financial advisor for more information.
Stay tuned for our next issue of Personal Finance Made Simple when we discuss tips on budgeting.