Many American’s are facing more debt than ever. Debt is more than just a monthly burden now. When you have to focus on paying debts, it takes away from long-term retirement savings. Whatever the factors may be that led to your debt, there are several steps you can take to lessen your debt and get back on track. And, once you’re out of debt, you’ll want to keep it that way.
Getting Out Of Debt
Knowing where to start can be a daunting task for some. Start by gathering all of your debts and assessing how much you owe. You can then create a plan and a timeframe for paying your debt off. Other steps you can take include:
Lower Your Interest Rates
Many credit cards carry high interest rates. You can lower your monthly obligations just by moving funds to a lower rate card through a balance transfer, or with a debt consolidation through a loan or line of credit. Continue to pay the same payments you have been and you will see you debt decrease more quickly, as more of your payment is now going to principle.
Plan for Unexpected Expenses
Avoid putting all of your extra money toward debt. It is important to ensure you are still maintaining a healthy emergency fund. Any debt payoff can be canceled out when an emergency hits.
Be Aware of Extra Spending
If you’re serious about paying down your debt, you may need to take a closer look at your budget and reassess your “fun” budget. If you’re not careful, paying down debt can sometimes be a little like bailing water out of a sinking boat. You want to ensure you aren’t making new purchases that are putting you back where you started.
Staying Debt Free
You don’t have any debt? Congratulations! Now what do you do? Here are a few tips that can help keep your finances in line.
Set financial goals
Goal setting is important when it comes to staying on track with your finances. Your budget should be realistic for your lifestyle and your income. Prioritize where your money should go, and have a plan for every dollar you earn. Pay yourself first by contributing to retirement and your emergency fund. Want to go on your dream vacation? Set up a separate savings for travel and build that into your budget.
Avoid impulse purchases, even if something seems like a good deal, those small purchases can really add up. Remember it is only a good deal if it’s something you already had the intent to purchase. It’s also important not to feel the need to keep up with your friends and neighbors. It may be nice to get a new car every year, but that’s often not worth going into debt for.
Ignore pay raises
Avoid lifestyle creeps and invest your extra earnings into your financial goals. The same applies to bonuses. If you budget your paycheck as if you’re making less than you do, it’ll be easier to save for the things you want, and you won’t have to put yourself in debt to get them.
To see our other Financial Literacy Month Article on Short Term and Long Term Savings, click here.
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