According to one study, the average American has $90,460 in debt, which includes all types of consumer debt, such as credit cards, personal loans, and car loans.
Whether you owe a few thousand or hundreds of thousands of dollars, paying off debt can lead to less stress and more opportunities. Use these do’s and don’ts to help reduce your debt burden and enjoy a higher quality of life:
First and foremost, take inventory of your debts, so you have a clear picture of how much you owe. Jot down all of your debt accounts, their total balances, and monthly payment requirements. Don’t forget to include small bills, such as overdue utility or cell phone bills, as these can also hinder your finances if you leave them unpaid. Knowing your debts is a great tool for reducing debt.
While this may seem obvious, avoiding any new debt is essential. You might have to forgo or delay certain purchases, like a new car or furniture. The more debt you take on, the more difficult and time-consuming it will be to become debt free.
Fortunately, there are several ways you can pay off debt. With the debt snowball method, you begin with your reducing your smallest debts and move on to more significant debts to build momentum and stay motivated. The debt avalanche is when you focus on debts with the highest interest rates first to save the most on interest. You may also want to explore other options like debt consolidation and credit counseling.
While throwing all your extra money toward debt may be tempting, an emergency fund is essential. Before you pay off any debt, ensure you have three to six months’ worth of expenses. One emergency expense can force you to take on more debt and derail your repayment progress. An emergency fund may also give you some peace of mind.
A money windfall is a sudden, unexpected influx of money. If you get one from a bonus, inheritance, or gift, use it to pay down debt. You can save a portion of it for fun, like a dinner or a weekend getaway.
A financial professional can help you develop a solid game plan for reducing debt so you can improve your finances and increase your financial security. Contact us today to get started.
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