Reducing Debt Takes Commitment and Patience
Photo Credit: Towfiqu Barbhuiya, Unsplash
Key Points
■ The sooner you address your debt, the sooner you can begin to do something about it.
■ Developing a budget and sticking to it is an excellent way to get a handle on your finances.
■ You need to pay particular attention to your credit cards, how many you have, and how much debt you accumulate.
Debt is something that no one wants, yet nearly everyone has it. It is simple to enter and difficult to exit. The good news is that there are actions you can take to manage and overcome your debt, regardless of its source or quantity.
First, remember that there is no fast path out of debt. Resolving a financial liability usually takes time and work. Also, settling your liabilities sooner rather than later would be best to avoid paying more in interest later. Use the following eight tips to minimize debt:
Take Control Right Now
There may never be a better time to pay off your debts. Nevertheless, review your financial records to calculate your income and spending before you do anything.
Include your average monthly revenue, such as salaries and pensions, in one column. Include all of your costs in a second column. Begin with your most significant outgoings, such as the following.
■ Mortgage or rent
■ Utilities
■ Food,
■ Transportation
■ Credit card bills
You should also include any additional cash outlays, as well as any non-monthly expenses, such as property taxes and insurance.
Create a Budget
"If you fail to plan, you plan to fail," as the saying goes, which is valid for your finances. Depending on your income and costs, you should plan and create a budget to assist you in allocating money for all your spending areas. Examine everything and consider cutting off any unneeded expenses.
Include your entire family in the budget-making process so they can better grasp your financial status. With them, review the statistics again and search for methods to improve revenue while decreasing spending. Can another family member, for example, take up a job? Can you shift to less costly accommodation if you are renting?
Pay Off Your Credit Cards
Consider removing credit card debt as one of your top objectives, as doing so can give you more flexibility. If you are stretched to the breaking point right now, you have no room for mistakes and no space to move in an emergency. Paying down your debt frees up part of your cash flow for other purposes. Paying more than the minimum on credit cards is an excellent way to minimize debt. Do not accept the pleasant low figure on your bill
Are you willing to pay more? If you can, think about it. Remember to pay your credit card payments on time as well. Paying late is another debt vice to avoid since it will result in needless late penalties.
The average annual interest rate for credit cards today is 23%. By paying off your balance swiftly, you effectively achieve a 23% return on your money—returns that a stockpicker could only dream of.
Reduce the Number of Credit Cards You Have
Consider having only a couple of credit cards and ensuring they have the lowest interest rate possible. Do not be afraid to search for a cheaper rate and consolidate your credit card debt by shifting to one or two cards. By consolidating your credit, it also makes it easier to manage your debt.
Avoid Taking on Additional Debt
Recall what got you into trouble in the first place. Take care of what you have first before adding to your debt. Consider using your credit cards solely for emergencies for a set period of time, say six months. Other purchases should be made with cash or a debit card. Lastly, credit card debt should be contrasted with so-called good debt, such as a mortgage, which is more advantageous because it is tax deductible and may also be considered a financial asset.
Contact Your Creditors
If you find yourself in a grave situation, contact the organizations to which you owe money because they may be prepared to work out a payment plan that allows you to lower your monthly contributions temporarily. If you own your home, talk to your mortgage company about a forbearance agreement, which can reduce or stop payments for a certain amount of time.
Consider Credit Counselors
You may opt to get help with your situation rather than handle the details yourself. Assistance is available for little or no cost through government programs or credit counseling services that will work with you to develop a long-term plan to pay off debt. However, using these services may harm your credit rating. You may want to consult a financial advisor or investment professional for input and advice.
Stay Vigilant
Remember to avoid obtaining debt again after you have lowered or even paid off your bills. If you lack self-control, try switching from credit cards to debit cards. Debt management is ongoing, so stay on top and keep as much of your money as possible.
Important Disclosures
This material is provided for general and educational purposes only and is not investment advice. Your investments should correspond to your financial needs, goals, and risk tolerance. Please consult an investment professional before making any investment or financial decisions or purchasing any financial, securities, or investment-related service or product, including any investment product or service described in these materials.
Portions of this article were sourced from the work of MFS Heritage Planning. Neither MFS nor any of its subsidiaries are affiliated with Optima Capital Management.
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