In this series for Money Smart Week, Everwise Credit Union is sharing tips on personal finance.
Paying down debt isn’t impossible. Use these tips to help make debt more manageable.
1. Create a budget to know your income, expenses and cash flow.
Use a budgeting app, spreadsheet, envelope system or the simple method of writing things down on a piece of paper, whatever works to track spending. Tally up total monthly expenses and income streams, list wants and needs, assign dollar amounts to expenses and review and tweak as necessary.
2. Organize your debt.
Before getting started, determine how much debt there is. Write down each credit card and loan with the current balance, interest rate, and minimum monthly payment. These numbers will help build a debt-payoff plan as described in the steps below. Also, add up the amounts owed on each account to reach the total outstanding debt amount.
3. Trim non-essential expenses and/or generate more income to have as much cash flow as you can.
Trimming spending in one budget category and channeling that money toward paying down debt maximizes debt payments. Find ways to make extra cash for those payments, such as freelancing for hire or selling creations on a platform, like Etsy.
4. Choose your payoff strategy.
There are two main methods to pay down debt, called the Snowball or Avalanche methods.
The Snowball Method prioritizes paying off the smallest debts first. Still, it’s important to keep making the minimum payments on other debts.
OR
The Avalanche Method saves the most money by paying off debts with the highest interest rates first and moving on to the next-highest rate until all debts are paid off. Again, it’s important to keep making the minimum payments on other debts.
Celeste Jones is an Everwise Area Manager in Central Indiana.
The information provided is for educational purposes only. The views and opinions expressed are solely those of the author. This information should not be considered to constitute financial, tax, legal, or accounting advice or recommendations. Please consult with an attorney, financial or tax professional for guidance.
