How To Pay Off Debt So You Can Build Your Savings And Invest Rather Than Spend Your Money On Bills
It's no fun to be in debt and watch all your money go toward paying credit cards and loans each month. You may think it's impossible to pay off your debt on your current income, but there are a few tricks you can try that might help. Here are some strategies for paying off your debt and freeing up money so you can build your savings and investments.
Create A Strict Budget
The first step is to look at your finances so you know how much you earn and how much you spend each month. As long as you're making more than you spend, you should be able to organize your debt so you can pay it down quicker. It may not be fun sticking to a strict budget, but remind yourself that the payoff will be that you're debt free.
You may need to cut some things out of your life and downgrade others, but try to create a budget that frees up extra cash you can put toward extra debt payments. If you only pay the minimum payments on credit cards, it could take years to get out of debt.
If you can't free up extra cash through a strict budget, you may want to take a side job to earn extra cash. When you create a budget, include money for savings. By building up your savings, you'll have money for emergencies instead of using more credit.
Pay Off Low Balances First
Arrange your credit card bills and loans according to the balance. Pay the minimum amount each month on all your debts except the one with the smallest balance. Pay as much as you can beyond the minimum payment so the bill is paid off quickly. When that one is paid off, take the money you spent on it every month and apply it to the next debt. Keep going until all your bills are paid off.
This method is popular because you can see fast progress by targeting bills that have the lowest balances first. The rate of progress depends on the amount of cash you can put toward each monthly payment, and the amount grows so that by the time you reach your biggest bill, you'll have a lot of money freed up to pay it off.
Pay Off Highest Interest Rates First
Another way to pay off debt is to arrange your bills according to how much interest you pay. Start paying off the bill with the highest interest first. This may be more difficult for you to do, so compare this method with paying off the lowest balances first to see what works best for your finances. Just remember to stop using your credit cards while you're trying to become debt free.
Consolidate Your Debts Into A Single Loan
Debt consolidation might work for you, and it's another option to consider when you're looking for the best way to pay off debt. One reason this is sometimes a good choice is that your total monthly payment will probably be lower than it is if you pay each bill individually. Plus, you'll know exactly how much the payment is each month since it won't vary throughout the life of the loan.
Check online to learn more about how to pay off debt.