How to Pay Off Debt
Dealing with debt can be stressful and challenging. If you plan to pay off your debt, creating a plan is the very first step to making you debt-free. To ease your process, you can help yourself by adopting healthy financial habits which also can bring you to improve overall finances. There are strategies you can follow that will work for people with any debt amount.
Habits that Can Change You
1. Set Goals
Paying off your debts might be listed as the highest rank on the things you want to do, but this doesn't need to be the only financial goal you have. The interesting thing is that setting other financial goals will help you to stay motivated in achieving certain goals. For instance, you want to buy a house, take a luxurious vacation, or have savings up to $10,000.
Put the list of your goals in a spot where you can see them. See it can remind you why you have to pay off your debts and work so hard.
2. Create a Budget
Creating a budget makes a solid foundation for your financial condition. To guide your spending decisions, having a budget will put you on a firmer grasp to know how much cash you have going out and in each month. Looking at your plan will help to discover which areas you can save, and use this extra to pay the debts faster.
To help your budgeting, try to use the 50/30/20 method. The 50 is for essential expenses, and the 30 part is for wants. The 20 part is used for savings and debts. To ease you, try using a budgeting app to keep you on track (Irby, 2021). Some apps will provide features where you can set your projected expenses and budget categories as well as track your monthly spending. Some budgeting apps have advanced features like investment management, spending alerts, and bill tracking. This allows you to know your whole financial condition.
3. Have Emergency Savings
One main thing you can do to free yourself from debts is by building emergency funds. Without access to it, you may have to use your loans or credit cards to cover unexpected expenses. If you have emergency funds you don't have to choose between saving money or paying off your debts. And with this, you can do both even if you do not have extra funds after expenses and bulls.
Use these strategies to save more dollars at one time. First, you may try to split your deposit paycheck into several bank accounts. Second, use bank features that allow you to round up each debit transaction and move it to different savings. The third is setting up your recurring automatic transfers to your savings account.
4. Celebrate Your Process
To pay debts can take a long time even if you are equipped with extra payments and soils strategy. Recognize your progress and celebrate it along the way as you make move towards your aim. Small things like reaching a thousand bucks in your savings or paying off a balance are worth celebrating. This helps you be motivated to reach a bigger win.
5. Seek Help
You better find support from like-minded friends, social media, or online groups to cheer you up in your debt journey. Some forums provide you with connections with other people who experience the same. They might help you better in getting out of debt. Or if you want to get professional help, seek help from your Lionhood Financial coach to give you their advice.
Some professional firms will help to create a budget, make plans to pay the debts, and work with the creditors. Having a credit counselor is a great idea since they can negotiate minimum payments and lower interest rates. They even create a debt payment to help their clients tackle their debts.
Debt Strategy
There are strategies you can use to boost your payoff speed.
Debt Snowball: in this strategy, you focus on your smallest debt first, and pay minimum for other debts. After finishing the small one, then roll the amount you pay into payments on the next one.
Debt Avalanche: different from the previous one, in avalanche strategy you will pay debts with the highest interest rate first, and pay minimum for others. And once it is finished, you focus on the next highest rate. This way will save you money and time.
Debt Consolidation: the third strategy is consolidation where you combine multiple old debts with a single new one. This makes payments more manageable when it has a lower interest rate and shorter payoff period (NerdWallet, Inc. 2021). To consolidate debts, you can use personal loans or balance transfer cards.
Debt Management Plan: this strategy is used for those who face a mountain of credit card debt and have no idea how to solve it. If you make no progress in resolving your debts, the nonprofit credit counseling agency will help to set up a debt management plan. This is used to cut the interest rate and bring you on a repayment plan.
What to Do After Debt-Free
Congratulations! You already paid off all or some of your debts. And now is the time to think about what to do next. This stage is important because it can determine whether you end up back in debt or you stay off it later. So, here are the things you have to do.
1. Stop Using Credit Cards
If your debts are mostly credit cards, this is the most important thing to do which is get rid of the use of credit cards. Because, once you pay off your credit card debt, it is easy for you to get back in debt again. This cycle is dangerous.
So, stop using credit cards altogether and start budgeting based on what you earn. Use debit and cash only.
2. Revisit the Budget
Every couple of months, you have to revisit your budget and check whether or not it works for you. Revisiting the budget is important when you have a big financial change happen. It can be a pay decrease, increase, new expenses, or when you already pay off your debts. If you're still in debt, check which part you can just according to your budget. Check with your Lionhood Financial coach to see what you can do.
References:
Habits That Will Help You Pay Off Debt
BY LATOYA IRBY Updated July 18, 2021
https://www.thebalance.com/habits-to-pay-off-debt-4125554
NerdWallet, Inc. 2021
Pay Off Debt: Tools and Tips