JOHNSON CITY, TN (WJHL) – Most people love the idea of not having to worry about money — whether its bills or vacations or that item that’s a splurge — we may feel compelled to spend money we don’t have. And that can cause big problems down the road.
We’re talking about debt.
We asked the experts at BCS Wealth Management for some free advice.
Here are 11 ways you can chip away at your debt before it gets out of hand:
The first thing you have to do is take inventory. Make a schedule of everything you owe and the money you have to start paying them.
It is hard to develop a plan to get out of debt if you don’t know where you are. Organize your debts from lowest to highest, and with interest rates being paid.
While it’s not easy or fun to see how big that mountain of debt really is, it’s a great first step.
Establish an emergency fund
An American Express survey showed that half of all Americans experienced an unforeseen expense in the past year — mostly related to healthcare and car trouble.
Establish an emergency fund of $1,000.
To get out of debt, you can’t add to debt. Emergencies happen all the time — car repairs, medical bills and other unexpected expenses — and without an emergency fund the first place people typically turn to is their credit card, which just adds to their existing debt.
Get Rid of High Interest Rates First
Pay down the debt with the highest interest rates first. This not only saves you money, but will also then provide more to pay down future debt principal once paid off.
Check your bill statements to find the debt with the highest interest rate.
The Debt Snowball Plan
Our fourth tip is taught in many financial classes and it’s easy to see your progress, which can encourage you to stay focused –Pay off the account with the smallest balance first.
Once a debt is paid in full, add the old minimum payment — plus any extra amount available — from the first debt to the minimum payment on the second smallest debt, and apply the new sum to repaying the second smallest debt.
Repeat until all debts are paid in full.
Developing a Budget
Develop a monthly budget and then live by it.
All people that are serious about getting out of debt do this.
It won’t be easy. Paying off debt takes sacrifice and discipline, and teamwork if you’re married.
Our experts say there are free apps you can download that will help you track your budget on your wireless device.
Take Advantage of Extra Paychecks
Did you know if you’re paid bi-weekly you get two extra paychecks a year? This is a perfect opportunity to use that money to pay down some of your debt.
If you can squirrel away those two paychecks it could make a dent in one of your bills.
Use Your Tax Refund to Pay Down Debt
A big chunk of cash from the government is tempting. You could buy that huge TV you’ve been eyeing for a few months. Maybe a vacation sounds nice.
The experts at BCS Wealth Management said, “Don’t do it!”
Stay strong and true to your budget. Rather than taking a trip or buying something, use your tax refund to pay down debt.
It’s one of those tough decisions. You’ll be glad you didn’t fall off the debt-control wagon. And with a healthy tax refund, you’ll be able to see a sizable difference in your debt.
Stop Using Credit Cards
Put away the credit cards. Don’t carry them with you so you’re not tempted, and only pay cash for items.
Remember: The key to getting out of debt is not incurring any more debt.
If you really want or need something, start saving. You may find you’ll appreciate it more when you have to wait to have it.
Get a Debt Consolidation Loan
Debt consolidation loans will usually help you manage your payments better and typically at a better interest rate.
Two things to keep in mind: Make sure you find a reputable company, otherwise your hard work and discipline won’t see big rewards. Also, consolidation works, but it doesn’t fix spending habits, and that can make the debt problem even worse.
Some Sacrifices are Necessary
Getting out of debt requires making tough decisions, and this may mean sacrificing your spare time.
You can get a second job and put all additional earnings to pay off debt. Also, reduce your expenses, and put whatever your save toward your debt.
Get a roommate, share your commute with a coworker, cancel services or subscriptions, eat out or get coffee only once a week at most.
After a while, you may not miss the extra channels you never watched in the first place. Doing these things alone could have a big impact on your debt payment.
Read stories, or talk with people who have gone through the process of reducing their debt. They have great practical experience, and can help you strategize.
They can also provide support in your quest to be debt-free.
It’s important to remember that getting out of debt is a marathon. Not a sprint.
It will be difficult, but when you start seeing results of your discipline, it will encourage you to keep going.
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