New Year's Resolutions: Top 10 Tips for Paying off Debt
Following the revelry of the holiday season, many want to trim the fat from their waistlines, their spending and their debt (which can easily skyrocket during the holidays). As you enter the new year, consider the following tips to stick with a budget and rein in your spending to start paying off debt.
10 Tips for Paying off Debt in the New Year
1. Do Not Neglect Saving
When paying off debt, many forgo saving in order to throw larger payments at their credit cards and loans. Not saving, however, will only increase your debt in the future when you run into an unexpected bill.
2. Make a Budget and Follow It
A budget is an essential step in the process setting financial goals (like saving and paying off debt) and achieving those goals. You can create a budget the old-fashioned way, using a spreadsheet and receipts, or let technology assist you with the process. A couple of favorite free online tools are Mint and Acorns, which help you create a budget while also automating expense tracking, debt payment and saving.
3. Snowball Your Debt Payments
If you have more than one loan or credit care payment, make the largest payments to the account with the highest interest rate and pay the minimum on the rest. Once you have paid off the first, add what you were paying toward that account to the payment you make on the loan with the next-highest interest rate. Continue this process until you have paid off all of your debt.
4. Cut Unnecessary Spending
Scrutinize every single expense. Can you live without that pack of gum? Can you survive on coffee brewed at home? Is a name brand really better than the generic?
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5. Never Miss a Payment or Pay Late
Late fees are money down the drain. Never miss a payment and, if accruing interest, pay as early as you can.
6. Automate Payments
Make use of automatic payments or your credit union's bill payment services to schedule payments and ensure you never pay a late fee.
7. Use Extra Cash Wisely
If you receive a bonus at work, a tax refund $20 in a birthday card or an inheritance, you might be tempted to buy something fun, like a day at the spa, a vacation or a new television. Exercise self-control and put your unexpected windfall into savings or toward a high interest debt.
8. Know the Difference Between Good and Bad Debt
When trying to get out of debt, avoid taking on more debt. Try not to make new charges on your credit cards or take out new loans. Some debt, however, can help you get ahead – the kind that leads to an investment. For example, a loan to start a business that will increase your income, to invest in a rental property or, perhaps, to purchase a house instead of paying rent each month.
9. Refinance, but Cautiously
If you receive an offer to refinance or transfer a credit card balance to a lower rate, go for it, but proceed with caution. Be sure you are clear about any associated costs, such as balance transfer fees. These fees can end up costing more than the total you will save in interest expense.
If you have several debt accounts, payments can become complicated. When you consolidate debt into one loan, you have one monthly payment. Consolidation loans also have lower interest rates than most credit cards. As a result, consolidating not only means simpler repayment, but also money saved in the long-run.
If you have debt and would like to pay it off, you can always speak with a representative from America's CU. With your best interests in mind, we can help advise you on the quickest, cheapest and easiest ways to pay off your debt.