It’s a new month and a new personal finance challenge: eliminate your debt. Hopefully, you are now comfortable creating a budget, and maybe even following one for the first time. Now that you know your spending habits and budget, let’s start to eliminate your debt.
Eliminate Your Debt Rules
1. Create or Organize a Budget
If you participated in the February and March Challenges, you will be well versed in your budget and financial habits. This is still a critical step when it comes to getting out of debt. Use ACCC’s budgeting resources to get your started.
2. Organize Your Debts
It’s critical to know all about your debts so you can decide which debt elimination strategy will work best for you. For each of your debts, you should know the balances, minimum monthly payments, the interest rates and any other significant information- like if any are past due accounts or in collections. Put this information into a spreadsheet on paper or in a computer program, like Excel. This includes credit card debt, student loans, mortgages, etc…
3. Choose a Debt Elimination Strategy
Debt Snowball- If you aren’t in serious trouble with collections or past due accounts, consider the Debt Snowball. Pay minimums on all your accounts except the one with the smallest balance. Pay this off as quickly as you can. Once it’s finished, use the money toward the next smallest debt and so forth. Use your budget to determine how much extra you can pay towards the target debt.
Debt Avalanche- Instead of tackling your smallest debts first, the Debt Avalanche targets debts with the highest interest rates and works its way down. Prioritize the debt with the highest interest rate while doing minimum payments on everything else. This method will save you more money than the Debt Snowball, but it might not be as motivating since debts don’t get cleared as fast. Debt Management Plan- If you realize you need help beyond yourself to eliminate debt, entering into a Debt Management Plan through an approved credit counseling agency is an option. These plans work with the creditors to bring you more reasonable monthly payments and lower interest rates, while leaving you money for your day-to-day lives.
Bankruptcy- Finally, if you have unmanageable debts, can’t afford to sustain your daily life and have not qualified for a Debt Management Plan, consider filing for bankruptcy. While there are negatives to this option, it can give you legal protection from your creditors. Again, work with an approved agency for your bankruptcy counseling.
4. Take Action to Pay-off Your Debts
Nearly every American will face some kind of debt in their lifetime. Sometimes, it can build up and you may need help getting out of debt. Whether it’s through education or working with an approved credit counseling agency, it’s important to begin erasing your debt.
To speak to a credit counselor today about budgeting and managing your finances, call 800-769-3571.