With financial focus, one of the main things to get a good understanding on is how to reduce your debt so that you are putting more money in your pocket instead of paying more interest to creditors. Between the mortgage, student loans and credit cards, paying off debt can feel impossible — but there is a better way to get these debts reduced and paid off.
With these tips below, you should be able to not only reduce debt but with focus – eliminate debt entirely! So focus on the information below which are popular methods for paying off debt, plus some ways to avoid getting into debt at all. Before starting though, ensure you have a good grasp of all your debt and have an inventory of what you owe to all your creditors and then set your plan of attack by using one of the methods below.
1. Rollover Formula
- Attack the debt with the highest interest rate first, while paying minimums on the others.
- When that debt is paid off, put that same payment amount toward the card or loan with the second highest rate.
- Repeat until all debt is paid off.
- Apply that monthly payment into your savings instead!
Mortgage TIP: Find out if your mortgage has prepayment privileges. If permitted, consider paying half your monthly payment every two weeks or pay it weekly so it is a regular payment. Some months will have an additional payment, which could add up to one or two extra payments a year which goes directly to paying off your principal!
2. Snowball Method
- Attack the debt with the smallest principal first, while paying minimums on the others.
- When debt one is paid off, combine that payment with the minimum on debt two – your second smallest.
- Your payment will increase each time you switch to the next debt up, so eventually, you’ll be making the largest payment on the largest debt.
3. Avoiding Debt you can control
- Limit your credit card use to small purchases you’d make anyway, like gas
- Pay off credit card balance monthly.
- Create an airtight budget or spending plan
- Stock your emergency fund for unexpected costs.
- Pick up a side hustle and put the income toward your debt.
Once you have reduced your debt and possibly removed all your debt, make sure you check out further ideas for saving with five strategies to reaching your financial goals!
Need help saving for your goals? Give me a shout, and I would be happy to refer you to an excellent finance professional who can get you started or help you in your journey.