Nothing will slow down your life’s trajectory like being bogged down with debt. Thankfully, there are a few easy steps you can take to reach economic stability.
For the millions of Americans who struggle with debt, developing a practical repayment plan is the key to obtaining financial freedom.
If you want to get on top of your finances now, keep these tips in mind.
Start with High-Interest Debt
If you carry a balance from multiple lines of credit, determine which card or loan charges the most in interest.
Interest is essentially what you pay for the privilege of borrowing money. The sooner you can eliminate the interest you owe, the sooner you’ll be able to live a debt-free life.
Tackling your largest interest payment first will save you money in the long run.
To find out which line of credit charges the most interest, you can check your borrower’s agreement or you can contact the loan or credit card company to confirm.
Pay More than the Minimum
If you’re struggling with debt, you might be paying as little as possible to simply avoid late fees and negative repercussions on your credit report.
Paying only the interest can cost you much more in the long run. Since many minimum payments don’t count toward your principal interest, you might not even notice a reduction in the total amount you owe.
If you can manage, add at least $20 to your minimum payments. Increase that increment as much as you can to reduce your debt more quickly.
To simplify the process, you can set up automatic payments with your new installment amount. Or, you can also create an automatic bank transfer to ensure that you have enough money set aside.
Set Clear Goals
Becoming financially stable and independent sounds appealing for everyone. But, how do you get there?
If your goals are too broad, it can be difficult to come up with a plan.
Building a concrete timeline with actionable objectives increases your ability to reach your goals.
Start with smaller steps and build up to larger ones. This will also help you map out recurring tasks like bill payments and certain expenses.
To begin, determine what you ultimately want to accomplish and work backwards.
If you simply want to become debt free, assess how quickly you can pay off your total balance by comparing your salary with what you owe.
If you’re waiting to receive a paycheck or other lump sum, you might be able to reduce your existing debt by obtaining another line of credit. An auto title loan, for example, can help you pay your debt immediately while you wait for your pending payment.
Consider eliminating unnecessary expenses, or adding another stream of income, to achieve your goals in less time.
Create Payment Alerts
If you have a habit of missing payments, avoid late fees by setting alarms ahead of time.
Even small late charges can add up quickly, especially if you already have a high balance.
Most credit services allow you to set up text or email alerts. You can also add a reminder to your phone’s calendar, if you’d rather take care of it manually.
Taking just a few moments to set up a payment alert can keep you from collecting costly late fees and overdraft charges.
Reconcile your Debt
This step depends on your own individual circumstances, but you could save time and money by simply asking your creditors for some help.
If you owe at least a few thousand dollars, you might be able to negotiate a better repayment plan. In some cases, you might even be able to reduce your total balance.
It doesn’t hurt to ask, and debt reconciliation could bring you that much closer to your debt-free future.
Debt can be scary and overwhelming, but it can be managed if you’re willing to make a few financial changes. Taking some time to establish your goals and develop a realistic plan can help you build a financially healthy, debt-free life.
