Removing Debt From Your Life
It All Starts With a BudgetFirst, we need to create a budget and see where all of the income is going. This will help pinpoint where the source of the debt has come from. The budget can help improve spending habits and make sure that your income is used for necessary expenses such as mortgage, utility bills, groceries, etc. Once you are aware of your expenses, the remaining funds can be allocated to pay down your debt. Setting up a budget is not only beneficial for paying off debt, but improving your spending habits going forward.
Eliminate the TemptationThe second step, which is often the hardest for people, is to cut up the main source of debt, the credit cards. Out of the 176 million Americans who actively use credit cards, 70 million are carrying debt each month with the average balance just over $6,300. In 2018, Americans paid banks $113 billion in credit card interest. By eliminating the credit card before you start paying down your debt, you will help take away the temptation to increase your debt. In addition once you have successfully paid off your debt, you will have created a better habit of spending to reduce the risk of you falling back into debt.
Put the Debt Payment Plan to WorkWith the first two steps in place, you now have the resources available to pay down your debt. The strategy I recommend to all my clients is called the ‘snowball effect’. How the snowball works is attacking the smallest debt first with all of our extra resources then applying all of those resources on the next smallest debt and so on. This is contrary to many financial strategies of paying off the highest interest rate first. Both are good strategies but the reason most people are in debt is behavioral and not financial. Meaning we are spending more than we make. When we apply the debt snowball often, we see success early by accomplishing a goal and paying off a debt relatively fast. This allows us to see the progress and gives more motivation to continue on that track until we are ultimately debt free.
Paying off debt can seem like an overwhelming and daunting task. If it was easy then everybody would do it, but no great accomplishments are ever easy. Track your progress and cross off every debt you pay off to help during those times when it can be overwhelming. This will help you look back at the progress you have made and keep your eye on the ultimate goal of being DEBT FREE!
ABOUT SGROI FINANCIALSgroi Financial is a full service, independent financial planning firm proudly serving the Western New York area since 1971. We offer services that will help you achieve your financial goals including retirement planning, investment management, estate planning, college planning and insurance. We help individuals, families, retirees, working adults, young adults and business owners.
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