It’s easy to fall into debt as it is. But with the holiday season around the corner, many people find themselves racking up their credit card bills which can put a damper on their holiday cheer, not to mention, it can have detrimental effects on their financial standing. It can be quite overwhelming, but our team here at Highlands Community Bank would like to provide you with the best tips for paying off debt!
Tips on How to Pay Off Debt
The thought of managing debt may seem near impossible. But you can conquer credit card debt in a few steps! There are numerous strategies you can utilize to make the process feasible, such as:
Paying over the minimum
A good rule of thumb is to pay more than your minimum every month to save on interest. Try to make extra payments regularly so you can pay off your debt faster. Depending on your lender, you may be able to make an additional payment every month to reduce the principal balance. But you should specify to the lender that you’d like the additional payment to go toward the principal. Experts recommend that you review the terms of your loan to determine whether additional fees or prepayment penalties may apply.
Paying more than once a month
Try to pay your credit card bills more than once each month so you can stay on top of how much you owe. You may also be able to lower your balance or utilization ratio when you pay your credit card bill multiple times a month. Your credit utilization ratio is the percentage of your total available credit that is currently being used. It’s one of the components credit reporting agencies consider to determine your credit score.
Keep track of bills and pay them in less time
We can’t recommend this enough: use bill reminders and pay your bills online to stay ahead of the game. You can schedule however much you’d like to pay and when you’d like to pay them. Consider receiving eBills from payees who offer electronic billing, and be sure to set up payment reminders.
Debt Management Plan
Managing debt can feel like a balancing act, but you’ve just got to take it step by step! Here are a few ways to pay it down efficiently:
Paying Off Your Biggest Debt First
This technique is often called the debt avalanche. It entails tackling the debt with the highest interest rate first (while paying minimums on others), followed by the bill with the next highest rate, and so on. The idea is to lessen the load by going down the line until you’ve paid off all your debt. The debt avalanche could save you time, money, and frustration over time.
Paying Off Your Smallest Debt First
This is commonly known as the debt snowball. To use this technique, you’d start by paying off the smallest debt while you pay the minimums on other bills. Then, you would roll the amount you were paying on it into payments on the next smallest debt as you work up to the largest balance. A debt snowball could help you build momentum as each balance is paid off.
Keeping a Budget
Building and following a budget is a tried-and-true way to keep track of your debt and finances overall. Budgeting is a great tool to use to work toward being debt-free. There are a variety of budgeting techniques, but their foundational practices all involve focusing on the big picture, analyzing your spending, and setting goals. It’s all about finding a budgeting technique that works best for you personally.
The 50/20/30 rule is one of the most popular techniques out there. Following this technique would entail dividing your income between 50% of spending on essentials (i.e. debt, mortgage payments, food, and utilities), 30% of spending on things you want, and moving the remaining 20% of funds to your savings account. By following this rule, you could get your debt squared away and have a nice cushion from consistently adding to your savings.
Another common method is called zero-based budgeting. This is geared toward accounting for every dollar. It looks at your finances as a whole and factors in any unexpected expenses and savings. You would allot all of your income to spending categories until there are no dollars left over once the budget is complete. Begin with your bills, then divide any leftover cash into spending categories. Then, you’d take the remaining cash and put it toward savings and investments rather than spending it on anything unnecessary.
Another effective and simple way to stay on top of your debt is to use a debt calculator. There are several available online, such as the one Credit Karma has on its website. Theirs as well as other debt calculators require you to input the balance owed and the estimated interest rate. You can also enter the expected monthly payment or the desired timeframe for you to pay off debt. Then, you may use this to guide you in your journey to being debt-free.
All of these methods can help you maintain good financial standing. But we understand how debt can grow and begin to seem unmanageable. If you ever feel as if you’re struggling and not making much progress in paying off your debt, you could contact a nonprofit credit counseling agency about setting up a debt management plan to cut your interest rate and start a repayment plan.
Get ahead of the curve with Highlands Community Bank!
Our community bank is here for you, 24/7! We can assist you with all of your banking needs. We’re proud to offer online banking and a mobile app so customers can track and monitor their spending anytime, anywhere. One of our tellers could help you get started. Call us today at 540-962-2265.