Debt is something that almost everybody acquires in their lifetime. Some might not even realize this but your federal reserve note, your dollar, is a form of debt. If you have a bank account (savings, checking, money market, etc), when you signed up you signed a contract, a note, which declared the bank is indebted to you when you make a deposit. Debt is all around us, both good and bad debt. Get control of your debt, and stay focused with these tips.
Balance Your Strategy and Your Debt
Cut Your Credit Cards? NO!
Credit card debt is probably the kind of debt that you have with one of the HIGHEST interest rates. Is there any benefit to having one? Yes, absolutely. A credit card should never be seen as a long-term solution for any kind of purchase. You wouldn't want to keep a purchase of a used vehicle on a credit card. Think about it, paying around $4,000 for a used Honda Civic from the 90s or early 2000s at 25% interest? INSANE!
So what is a credit card good for? A credit card is good for very short-term debts. Think of it like an IOU to your creditor where you will pay them back in a week or two, if the times get tough, make it a month or two. Paying off the debt the sooner the better. Don't keep a longstanding balance, meaning don't keep accruing more interest on the debt balance that you've accumulated, or else you'll be stuck in a debt trap. If you need to pay a large sum of money for things like a car repair, then consider getting a proper loan, you don't want to pay several thousand dollars with 25%+ interest.
Consolidating Your Debt Can Benefit You AND Hurt You...
When you get a consolidation loan or a personal loan where you transfer your funds to pay off multiple debts, it can work to your benefit, but it is a double-edged sword. If you have a habit of overspending, why get a consolidation loan if you haven't learned your lesson?
It's very easy to get caught up and feel relief if you can get a low-interest loan and pay off your high-interest credit cards, while also spreading out the loan payments for a year or two with significantly lower monthly minimum payments. Yet, that is where you can hurt yourself if you continue spending as you were. Consolidation loans are only for those who want a simpler way to pay debts, one single debt, with lower monthly minimums, and who have learned their lesson on the dangers of debt accumulation.
Find a Debt Payment Strategy That's Right For You!
There are many different strategies to employ when you want to pay your debts off. First things first, balance a budget. Don't just create a budget... BALANCE IT. If your budget is not balanced where you can remain profitable then you'll have a tough time paying debt, and in fact, you'll be getting yourself into more debt. Debt traps are very common if you cannot handle spending. Make sacrifices by lowering your monthly expenses as quickly as possible. Once your budget is balanced, there are two major strategies that don't include Debt Consolidation:
The Debt Snowball Strategy:
This strategy prioritizes paying off your creditors over time by focusing on paying more of the debt off with the lowest balance while paying the minimum payment for all your other debts. Studies have shown that people feel more optimistic about paying off their debts using this strategy because it gives a sense of accomplishment.
The Debt Avalanche Strategy:
This strategy prioritizes paying off your debts with the highest interest rates. More than likely it will be a credit card of some kind. The focus on paying off the one with the highest interest benefits you in the long run as you'll be paying less in interest over time. Depending on how much debt you've acquired, this debt may complement the Debt Snowball Strategy because credit card debt, which tends to have the highest interest rates, tends to have lower balances compared to paying off car notes or mortgages.
When you're way past your head and feel anxious over your debt, just take a deep breath and get your budget out and start budgeting. Changing a few lifestyle choices and habits can help squeeze out another 5$ or hundreds of dollars a month from your expenditures. Employing a debt payment strategy and sticking to it will be the quickest way to get out of debt. Also, remember, don't get into more debt, if you cannot already pay what you currently have. Work with a bank or credit union and see what your options are; They will be MORE than happy to take your money. Stay vigilant.