Tips & Resources

Top Tips for Paying off Debt

Top Tips for Paying off Debt

Debt has become so normal for the majority of Americans that you may not even think twice about swiping your credit card or applying for an auto loan. And while having debt may not necessarily be a negative thing for everyone, if you’re struggling to pay your bills each month, it’s probably time to work toward decreasing your overall debt. Easier said than done, right? Well, we’ve done the hard work for you and found our four favorite tips for paying off debt.

  1. BUDGET
    You’ve probably heard this before from a parent, teacher, or friend, but budgeting is vital to paying off debt. To get started, review last month’s bank or credit card statements to see where your money is going. Enter the data in a journal or spreadsheet and then create a budget based on what you think you’ll need again. Then cut out what you can live without. Spreadsheets aren’t your thing? Check out the “8 Best Budgeting Apps to Download in 2018.”

    A common budget plan is called the 50/30/20 budget; 50 percent of your income goes to housing, 30 percent goes to wants, and 20 percent goes to savings and debt pay-down. This simple ratio will help you know exactly where you’re at and rid you of any anxious feelings that stem from not knowing exactly how much money you have to spend on certain things.
  2. SIDE HUSTLE
    National best-selling author and radio host, Dave Ramsey, says income is your biggest tool in building wealth. Think of your debt as a hole and your income as a shovel. The bigger your shovel, the quicker you’ll be able to fill that hole back up.

    The key to finding a successful side hustle is to capitalize on your skills. Find freelance opportunities, sell items you no longer need (check out local Facebook garage sale groups or sites like craigslist.org), rent your home on Airbnb, or get a second job a few hours a week.

    Bonus tip: Do not, I repeat, do not get an extra job that tempts you to spend more money. If you can’t resist buying the latest fashions, working at Macy’s may give you the opposite result and put you further into debt!

    Extra income will make a substantial difference in the time it takes to pay off your debt. Remember that this is a temporary sacrifice and will be worth it in the end when you can say you’re debt free.
  3. LIMIT CARD SPENDING
    Ideally, your credit card balances should not exceed 40% of your available credit. Keeping your credit spending under control while you’re trying to pay off debt is vital. Take all credit cards out of your wallet and leave them at home. Even if you get cash back, it’s not worth racking up another credit bill that’s not included in the budget you made.

    Also, if you do a lot of online shopping and have your credit card saved in your browser, delete them. It may be convenient to purchase items with just one click, but since you don’t “feel” the money leaving your hands, it’s easier to spend more frivolously.
  4. CHOOSE YOUR METHOD
    There’s two well-known methods to paying off debt: Snowball and Avalanche. Basically, the snowball method attacks the lowest balance debt first while the avalanche method works toward paying off the highest interest loans first.

    Typically, the avalanche method will save you more money in the long run, but the snowball method allows you to celebrate little wins more quickly and can be a great mental boost while you’re on your way to financial freedom. This calculator from unbury.me is a great tool for you to see the how each method shakes out with your personal debts.

If you follow these top tips for paying off debt, you’ll reach your financial goals in no time. Treat yourself to a mini weekend getaway, or just a night out to dinner when you conquer a major milestone. Remember how important it is to reward yourself when you overcome a big part of your debt.

At The Bank of Elk River we’re committed to doing everything we can to help our customers. For more top tips and information about consolidating your debt, call us today.

Tags
Debt Repayment Debt Snowball Debt Avalanche Dave Ramsey

Categories:

Tips & Resources