Paying Off Debt The Right Way

Debt Help

According to a recent report by NerdWallet, Americans are doused in debt. The average American household is $134,643 in debt. Carrying debt has sadly become a part of American culture, but that doesn’t make it acceptable.

Rather than failing with the masses, you can become an exception to the rule by clawing yourself out. Patience and a realization of the reality in front of you are crucial right now. If handled properly, your debt can become a thing of the past.

Wouldn’t you like to be able to prepare for the future? It’s very possible. It just has to be handled the right way.

Analyze Your Expenses And Budget Accordingly

This is always the first step. Before you begin changing your fortunes, you need to know exactly where you stand. Once everything is in order, plug all of that information in some form of budgeting software or a budgeting web app. For example:  Mint.com. With everything laid

Remove The Excess

With a clear outlook of your budget in front of you, you’re going to start to notice excess. Some of these things will be more obvious than others, such as a Hulu account no one is using, or a membership to a gym you haven’t visited in the last several months. Others may require more thought, however.

Cell phone plans. According to a recent report by J.D. Power, the average monthly cell phone bill is $73. When you step outside of the big four carriers (Sprint, AT&T, Verizon, T-Mobile), there are quite a few plans that put that figure to shame. Ting, for instance, can provide low data users with plans as low as $9-$15 a month. There’s also Google’s Project Fi. Paired with select phones Fi offers unlimited talk and text for $20, and just $10 per GB.

It should also be noted that both Ting and Project Fi (only two of many such carriers) use a combination of Sprint and T-Mobile’s networks to function. Why pay more for equivalent service?

Living Beyond Your Means. Be honest with yourself. While you have worked hard for the things you have, can you truly afford it? If your rent or mortgage payment is more than 30% of your monthly gross income, then you need to re-evaluate your living situation.

Relocation may seem drastic, but these are drastic times. This same mindset applies to vehicles as well, except you should limit that payment to just 10% of your gross income. If your current vehicle payment is anymore, then you ought to be searching for an affordable alternative.

Consider Secondary Income Options

Even if you’re not living beyond your means, the financial strain your debt has put you in may mean you’ll need a second job, regardless. Depending on your available hours, this could mean a simple part-time role at a local shop, or it could mean putting under-utilized skills to use.

A bit of online research on freelance opportunities in your chosen field is a great place to start. The objective here is to pour as much of this income as possible directly towards your debts.

Set Aside An Emergency Fund  

After assessing your finances, and making lifestyle adjustments, there is still one thing you must do before taking those deep cuts into your debt: set aside money for emergency purposes. Accidents and disasters do not take breaks because you’re trying to fix your debt.

You need extra funds on hand or else you will find yourself paying hospital bills with credit, creating more debt in the process. The Simple Dollar suggests a flat $1,000 emergency fund for this exact situation.

Pay Off Debt Your Way

When it comes to squaring away debt, many financial advisers suggest prioritizing paying off accounts with the highest interest rates. While this is certainly sound advice, recent research conducted by The Harvard Review suggests that most will see more success focusing on smaller balances first.

Business Insider breaks it down like this, “Harvard researchers Remi Trudel, Keri Kettle, Simon Blanchard, and Gerald Häubl determined that consumers who focused on repaying one of several accounts, as opposed to chipping away and multiple accounts at once, paid off more of their debt over 36 months than their counterparts who took the opposite route.”

All this considered, it’s clear that not everyone will pay off their debt in the same way. Some won’t be comfortable watching their accounts with high-interest rates continue to wreak havoc while they are busy eliminating those smaller balances.

Others may decide to pay off their debt by distributing funds evenly across all accounts. It’s more important that you’re paying it all off more than anything.

Hard Work Pays Off 

There is no hiding from your debt. You really only have 2 choices, if you want to live a life of freedom and success: fix this now or fix it later. No one admitted this was going to be easy. Sacrifices are going to be made.

Quite honestly there could be difficult moments you realize your lifestyle will go through while pulling yourself out of this debt. However, when it’s all over, without a doubt, you will realize it was all worth it.

Honestly, most realize there might be some difficult choices and changes to be made  in their lifestyle habits while pulling out of debt.  However, when it’s under control and debt has dwindled, you’ll realize it was worth it all.

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