RSS FeedDid you know that the average American household has more than $15,000 in credit card debt alone? Perhaps your own debt is smaller (or larger!), but it still needs to be paid off—keeping your debt going costs you a lot of extra money.
Debt does seem overwhelming, and you probably wonder how on earth you will ever be able to pay it off, but there are relatively painless steps you can take to work your way through the process.
Make a budget
We’ve talked about this before (see our blog posts, including Financial Planning Tools). Before you can even begin to address your debt—or any other financial issues—you have to know exactly where you are financially. How much money comes in, and how much goes out? When the money goes out, where does it go? To get started, download our free Household Budgeting Worksheet here. Take some time to work on your budget and actuals, and fill in as many categories as apply to you.
Make a list of your debts; be sure to include the amount you owe and what your interest rate is.
Now examine your budget
Where can you cut expenses? Once you have your expenses entered by category, you’ll see some opportunities to save some money: Take your lunch to work, not eating out so often, curtailing impulse buying, going without cable for a while, etc.
Now is also the time to stop using your credit cards. Don’t pile on additional charges until your old ones are paid off! Take your cards out of your wallet, and delete them from any online accounts.
Pay off your most expensive debt first
If you have credit card debt, focus on the card with the highest interest rate first. This one is costing you the most additional money! Increase your payments on this debt, and continue to pay the minimum payments on your other credit cards. Once that card is paid off, move down the list to the card with the next-highest interest rate.
Pay more than your minimum payment
If you only pay the minimum payment due each month, it will take you years (and a boatload of expensive additional interest) to pay off your debt. Try paying double your minimum payment, or try making payments twice a month (or even weekly). You will be amazed at how this accelerates your progress!
If you have a home mortgage, this is also an excellent way to shorten the life of your loan. Pay two mortgage payments a month, add extra to your payment, or even just round up your payment to the next even hundred. Just check your loan terms to make sure that additional payments will be applied to the principal (your original loan amount without interest).
Use balance transfers
This is a worthwhile short-term tactic to save money on accumulating interest, but you must be careful and pay attention. If you have a credit card that is offering a zero-interest balance transfer, consider moving your high-interest credit card balance over. Things to watch out for: That zero interest will only apply for a certain length of time, so make sure you can pay it off before that date; also make sure you understand any fees involved (there are always fees!).
Apply any unexpected windfalls to your debt
This is really a pain-free approach. Did you get a tax refund, or a bonus at work? Apply those to paying off your debt. Additionally, if you get a raise, apply that extra amount to your debt payment.
Sell household items you no longer want or need
Do you have quality goods gathering dust that you just don’t need or want anymore? Sell them on Craigslist Hawaii or on eBay. Just remember to use the proceeds to pay down your debt.
Extra work
If you have the opportunity to do some short-term additional work, you will have that much more to apply to your debt. Ask around, check Craigslist Hawaii and other job sites, volunteer for holiday hours or overtime. Or perhaps you have a hobby that you can turn into a part-time business (repair work, crafting goods, art). It all adds up!
Make sure you stick to your goals
Don’t let previous “spendy” ways derail your path to being debt-free. Keep an eye out for impulse purchases and sneaky small expenditures like that daily morning latte. Keep checking your budget, and enter your actual income and expenses so you always know just what your current financial picture is.
Celebrate!
Once you have that debt paid off, reward yourself for your hard work—but within reason. Buy that new outfit—but on sale!
Questions? Stop in at any of our convenient locations—we’ll be glad to help!
