Did you know that the average household debt in America totals $38,000? When trying to get out of debt, there are many factors and strategies to consider. Each strategy can significantly impact your finances if you are serious and dedicated to following the plan. Your first question may be, “Where do I start?”
Create a strategic spending plan
First, put down on paper all monthly incomes once taxes and expenses have been removed. Indicate the minimum payments you made each time. Next, rank your expenses by their importance and analyze the ones at the bottom of the list to see if they are necessary. You can complete this plan by allocating a budget for each type of expenditure (rent, groceries, outings, clothing).
The goal of this budget is to evaluate whether you are living within your means.
Make a list of all your credits
Make an inventory of all of your necessary expenses and credits and indicate each entry’s interest rate (credit cards, mortgage, car loan, etc.). A person can classify these by sorting the credit with the highest or the lowest interest rate in order to prioritize their repayment.
Choose a repayment strategy
When paying off credit cards, you have the choice to pay the minimum amount on all cards except the one with the lowest or the highest interest rate.
Choosing to pay the lowest amount is known as the Snowball method, while the highest is known as the Avalanche method. It is up to you to choose the option that best fits your needs.
If you go with the Snowball method, focus on the debt with the lowest interest rate. By choosing to start this way, it will take longer to repay your debts, and the overall interest rate will be higher. However, the effects are seen more quickly, encouraging you to continue this way.
If you choose the Avalanche method, focus on the amount with the highest interest rate. You choose to abolish the largest debt as soon as possible by adopting higher payments. Once this debt is paid, you can move on to the next debt and continue so on until you have paid off all your debts.
These are just two of many strategies. Feel free to do your own research to find a plan that suits you best.
Use a debt payment calculator
By entering all debts into a debt calculator, the program will provide you with different strategies to implement concerning payment plans. The calculator will show you what you must pay each month to your creditors. Examples of these calculators include CalcXML, or the calculator set up by the government.
Choose bi-weekly payments
By making a payment every two weeks instead of once a month, you can segment your expenses and add an extra month to your repayments each year (you will make 26 payments or 13 months of repayment).
Automate your payments
If you are not yet comfortable with your ability to pay your bills on time, consider setting up automatic payments between your creditor and your bank account. You can choose the amount and date of the deduction to make sure there is enough money in your account.
Learn about interest rates
It is possible to take advantage of lower interest rates; you just merely have to ask. If you have an adequate payment history (and are threatening to take your business elsewhere), some creditors may offer you a discount. If this fails, choose a credit card with a lower interest rate and transfer your balance. Read the conditions of your new bank carefully so as not to be surprised by hidden fees.
You can also opt for debt consolidation. This allows you to consolidate all your debts with a lower interest rate. However, having a fair credit score is often a requirement for these programs.
Reward yourself!
It is a great idea to reward yourself for achieving milestones. This does not have to cost money, but it will surely keep a person motivated. Maintaining fiscal determination to get out from under your debt must always be a top priority.
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