How to Pay Off Debt Effectively
By Haley Tolitsky, CFP
Debt management can be extremely overwhelming. You do not know where to start ? This article is for you! Start by listing all of your debts, including type, balance, interest rate, and monthly payment. Remember to check your credit report to determine what you owe. Organize your list from highest to lowest interest rate.
Make sure you have a good understanding of your income and expenses, so you can determine how much extra money you can spend on your debt each month. You may have to make small sacrifices on your debt repayment journey by cutting back on unnecessary expenses like dining out several times a week and shopping online, but you don’t have to give up what you love. make and create fun memories to reach your financial goals!
Before you start paying additional debt, make sure you have an adequate emergency fund. Start with one month of living expenses in a high yield savings account, then work your way up to at least 3-6 months of living expenses. You don’t want to take on more debt in an emergency because you didn’t have any funds set aside!
Next, make sure you contribute enough to your employer’s pension plan to get the full employer’s equivalent, which is basically free money. If you are unsure of what you need to contribute to get the full employer match, contact your HR department or plan contact.
Now we are tackling your high interest debt, that is, credit cards, which have an average APR of 15-25%. While continuing to make minimum payments on all debts, pay any additional funds you have available each month to your highest interest rate card. Once paid, transfer that monthly amount to the next higher rate credit card. Try to pay off all credit cards as quickly as possible to avoid wasting a lot of money in interest and to free up cash in your budget.
Once your credit cards are paid off, take those monthly payments and apply them to your next highest-interest debt, while increasing your pension contributions. If you have student loans and / or a mortgage, you need to invest for your retirement while paying them back. The earlier you start investing, the more time your money has to grow and accumulate. This does not apply to credit cards because their interest rates are very high.
You can also consider a credit card balance transfer or debt consolidation, but be sure to do your research before going ahead with either option. Getting a second job, starting a sideline, and / or selling unwanted clothes and items can also increase your income, which you can use to free yourself from debt sooner. There are many great spreadsheets that can help you track your progress along the way.
The key is to understand all the debt you have and strategize for your repayment plan. Don’t fall back into your old ways and reward yourself when you pay off an account. Your journey to a debt-free life begins today!
About the Author: Haley Tolitsky, CFP®
Haley Tolitskty, CFP®, is CERTIFIED FINANCIAL PLANNER ™ with Capital Cooke in Wilmington, North Carolina, offering highly personalized financial planning and investment management services. She is passionate about financial empowerment, especially for women and the next generation, and enjoys the opportunity to motivate and guide others to take charge of their financial lives. Haley can be reached at firstname.lastname@example.org.
Financial advisory services offered by Acorn Financial Services, Inc. (AFAS), a registered investment adviser. Securities offered through The Strategic Financial Alliance, Inc. (SFA), a registered broker / dealer. Haley Tolitsky is a Registered Representative of SFA and Representative of Investment Advisors to AFAS. Cooke Capital is also not affiliated with AFAS and SFA. Surveillance office (703) 293-3100.
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