How to Pay Off Debt and Stick to Savings Goals
It is possible to pay off even large debt balances by devising a smart, sensible plan and sticking to it.
Debt has become a dirty word among many in America, but there's little reason for the negative connotation. Anyone who buys a house with a mortgage, a car with an auto loan or attends college with a student loan has just added a huge amount of debt to their assets. But this debt makes their future financial goals possible, and once it is paid off, these loans will leave their borrowers better off than before.
"Consumer debt in the U.S. is growing at a high rate."
Still, it's important to keep debt in check, something Americans in general may not be the best at doing. Recent data on consumer debt indicates that it is once again growing at a high rate. Based on information gathered by credit analysts CardHub, Marketwatch reported that if consumer debt keeps growing at the current pace , it's on track to reach $1 trillion in outstanding debt by the end of 2016. CardHub found that the average indebted household currently carried a balance of $7,597.
Taking on debt, even high-interest debt from credit cards or other unsecured loans, isn't advisable but may be unavoidable in some circumstances. Becoming trapped in a cycle of increasing debt can be frustrating and seemingly impossible to escape from. In reality, it is possible to pay off even large debt balances by devising a smart, sensible plan and sticking to it.
Take a step back
How do you know when enough is enough? As Nerdwallet wrote in a guide to debt reduction , debt may not be a problem unless it is interfering with your personal life or health in some way. Being called by debt collectors frequently is a sign that your balances may be getting out of hand. Any debt you hold shouldn't equal more than half of your income, nor should you be paying one debt off with another form of credit. Finally, if your debt load is causing you to lose sleep, become anxious or remain irritated, it's time to take action.
The first step to effective debt reduction is to stop adding to the pile. Do not open any new accounts or add to any balances. If this isn't possible, it may be necessary to consider debt counseling or bankruptcy proceedings. But if there's still time, this step needs to be taken decisively.
Paying off debt seems simple: Just make the payments that creditors request from you. In reality, of course, it's not that easy, and with several different kinds of debt, it can be hard to figure out where to begin.
The Simple Dollar recommended borrowers consider the snowball method , a popular strategy to make repayment easier. This method may seem counterintuitive at first, but it's the way it builds confidence and spending control that makes it very effective for most.
- First, list all of your debts from smallest to largest.
- Begin paying the smallest debt first by putting as much extra cash as possible toward it
- As small debts are eliminated and saving gets easier, more cash can be allocated to bigger debts
Taking it further
Even if you commit to the snowball method and are successful at implementing it, it can still take a while to pay down a large amount of debt. Perseverance is key when it comes to reducing this burden, so don't get discouraged if it seems insurmountable. If you want to speed up the process, you'll have to either add more income or reduce expenses wherever possible.
If you don't already know, the internet has made it possible for people to sell goods and services of almost any kind, providing an easy and effective method for earning extra income. Look into services that can connect workers skilled in a trade with people looking to pay for that service. Or use sites like Craigslist, Amazon and eBay to sell items you no longer need.
No matter if you're supplementing your income or not, it always helps to know where you're at and where you're headed. Create a budget that takes debt payment and savings as primary considerations, along with other essentials like rent and food. Tackle debt first and foremost every month and it will begin to dwindle faster than you might expect.
To get more tips on the best ways to save and spend, talk to a professional at your local Vectra Bank.