High-interest rate debt is a bigger drag on your success than low-interest debt, so you need to know which is which. Promise yourself that is the highest your debt number will ever be. Throwing money at a different debt every month, without tracking your progress, is a surefire way for burnout. This gives you milestones to celebrate, motivates you to keep going, and keeps you organized along the way. Remember making snowmen as a kid? You would start with a small snowball, then roll it along the ground, picking up more snow until you had a massive snowman belly.
With the debt snowball, you start by paying off your debt with the smallest balance, regardless of interest rate. While you pay off that debt, you make minimum payments on all the others.
Why is it called the debt snowball? Because the amount you put towards principle your balance snowballs every month. You keep putting the same amount of money towards your debts, even as you pay each one off, increasing the amount that goes towards principal over interest. The methodology of the debt avalanche is similar to the debt snowball, except with this method your goal is to minimize interest costs.
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No extra profits for those greedy creditors from you! With the debt avalanche, you start by paying off the debt with the highest interest rate, regardless of size. Then move on to the debt with the next highest interest rate.
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Why an avalanche instead of a snowball? Because, by eliminating high-interest costs first, you put more of your cash towards actual principal over time. This means getting out of debt somewhat faster and cheaper. Getting quick, early wins by paying off small debts, or paying the least amount of interest? Both the snowball and avalanche methods have their benefits. Pursuing a debt-free life can be a long process, depending on where you are starting, and paying off a few debts early on can really get you excited to keep going.
While small, day-to-day changes matter, a few big changes can fast track you to getting out of debt. Consider these ideas and decide whether the expense they represent is truly worth it to you. Are credit cards burning a hole in your pocket? It may be time to cut them up. If credit card debt is part of your problem, sticking to cash and debit cards can help you reset your spending mindset.
Once you are officially debt free, and used to spending less than you make each and every month, you can revisit the issue. Have a hefty car payment? Consider selling your car for a cheaper used model to eliminate the debt and reduce your insurance costs. Look for good used car deals outside of new car dealerships. Just be sure you have a good mechanic look over the car before you buy. Decide whether your family can get by with one car instead of two.
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Saving for the future is essential, but when you have expensive debt that is holding you back, you need to set your priorities. Pulling back on investing in the short-term can put you in a better position to invest adequately in the future. View each dollar you save in interest cost as a dollar wisely invested.
You can watch most of your favorite shows online, and even notable sporting events are offering free streaming options. We watched the Super Bowl last year via Amazon Prime. We could all do with a bit of minimizing. The fringe benefit of this exercise?
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That tough reality makes it easier to say no to spending in the future. A reasonable budget helps you understand where your money is going. And it clues you in on how much you can afford for the things you do want. By building a budget thoughtfully and allowing yourself some flexibility, you can reduce money stress by knowing there is always money in the bank for the things you need. Your categories, spending, and habits will change over the first few months.
And that is perfectly fine! It will take time to adjust to tracking your expenses and creating awareness of your needs.
Look up exactly how much you get paid each pay period. This is what you have to work with. Housing, utilities, groceries, insurance — These are the nonnegotiable expenses and must be covered first.
For now, assume you only make minimum payments on all of your debts since that is the amount required. It will help you have a greater understanding of where things are going. Some regular expenses include internet, cell phone, household goods, medical costs, pets, haircuts, car repair, and home repair. The money that is left over from your income after completing steps 2 through 4 is what you have to contribute towards your goals and fun.
In addition to debt paydown, you may want to allow for dinners out, gym memberships, gifts, etc. Includes comprehensive coverage on: assessing your debts, building better money habits, setting financial goals, budgeting strategies, credit counselling, debt reduction strategies, using credit cards wisely, how to shop for credit, and much more. Features practical examples, tips, frequently-asked-questions, worksheets, and checklists to help you reduce your debt load.
View Put Your Debt On A Diet: A Step By Step Guide To Financial Fitness
Whether you're in financial crisis, or just living too close to the edge, Put Your Debt on a Diet is the ultimate reducing plan to help you trim your debt load and put you on the road to good financial health. Put Your Debt on a Diet. Getting insurance is like carrying an umbrella to save you on that rainy day. Putting aside money alone is not enough, your money needs to grow as well. There are multiple investment options like SIPs, insurance, real estate, security bonds, fixed deposits, etc.
Even if the amount is less, start today and invest systematically every month.
How to Get Out of Debt With Frugal Living and Smart Shopping
Setting short or long term financial goals can be overwhelming, especially if you have never been at it. But it is never too late to begin. Start today. Gautami Sen is an MBA having majored in finance. However, she now fuels the creativity in her through various passionate pursuits like writing, painting and honing her culinary skills.
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