8 Strategies To Pay Off Debt Fast - partners1stcu.org8 Strategies To Pay Off Debt Fast The average...

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8 Strategies To Pay Off Debt Fast The average U.S. household with debt carries $15,675 in credit card debt. In fact, credit card debt costs consumers a average of $2,630 in interest per year, assuming an average APR of 18%.* Paying off a large amount of debt can seem overwhelming, but it doesn’t have to be. *www.nerdwallet.com

Transcript of 8 Strategies To Pay Off Debt Fast - partners1stcu.org8 Strategies To Pay Off Debt Fast The average...

8 Strategies ToPay Off Debt Fast

The average U.S. household with debt carries $15,675 in credit card debt. In fact, credit card debt costs

consumers a average of $2,630 in interest per year, assuming an average APR of 18%.*

Paying off a large amount of debt can seem overwhelming, but it doesn’t have to be.

*www.nerdwallet.com

1. Create a BudgetThe first strategy to paying off debt fast is to create a budget. A budget is a plan that shows where your

money will be spent each month.

Your budget should take into account the following:

• Your Income• Fixed Expenses• Discretionary Expenses• Savings

2. Lower Your ExpensesThe second strategy to paying off debt is to lower your

expenses. Since you have already created a budget, it is easy to see exactly where your money is going

each month.

Review all your expenses for the prior month, and pinpoint where changes can be made.

Discretionary spending is the easiest category to lower. It is important to distinguish your wants from your needs.

3. Increase Your IncomeAfter you have lowered your expenses, it is time to bring in more income. Maybe your full-time job will

let you work extra hours for overtime, or you can get a weekend job. You can also try asking for a raise.

Retail jobs aren’t the only part-time jobs. There are plenty of other options to earn extra money, such as:

• Selling on eBay• Freelance writing• Driving for Uber• Pet sitting or baby sitting

4. Pay More Than the Minimum Payment

After you have lowered your expenses and earned additional income, it is time to pay more than the

minimum payments toward your debt.

Your credit card statement will show how much additional you will pay in interest if you only pay the

minimum monthly payment. By paying more, you will reduce your credit utilization ratio, pay less interest and

increase your credit score.

5. Debt Snowball MethodOnce you have started paying more than the minimum

payment, it is time to put a real strategy in place in order to pay off debt faster.

With the Debt Snowball Method, you list your debts from smallest amount owed to the largest. First, you are going to focus on the smallest bill. Pay the minimum amount owed on all your bills except the smallest bill; then put all your

additional income towards the smallest bill.

Once the smallest bill is paid off completely, use the money you were paying on that bill for the next smallest bill.

Debt Snowball MethodExample

$200 Medical Bill.................$25 monthly payment$2000 Credit Card Bill.........$45 monthly payment$8000 Student Loan Bill......$85 monthly payment$15000 Car Loan Bill...........$300 monthly payment

In this example, pay the monthly payment on the credit card, student loan and car loan. Put all your additional funds toward the medical bill. Once the medical bill is paid off, use the money previously going to that bill to cover your credit card bill. Repeat this process until all of your debts are paid in full.

6. Reduce Credit Card UseIt is important that while you are focused on paying

off debt that you don’t get into any more debt. You do not need to shred all of your credit cards; however, you

should cut back on your usage.

Credit cards are not necessarily bad. They provide identity theft protection as well as points that can be

used for products and services. However, if you are not responsible with credit cards, they can cost you more money in the long run and potentially damage your

credit score.

7. Balance TransferAnother strategy to pay off debt is to initiate a balance

transfer. A balance transfer is moving existing high-interest credit card debt to another low or zero-interest

card. The main benefit is to avoid paying high interest for a long period of time, helping you pay off debt faster.

A balance transfer doesn’t wipe your debt completely. It just moves your debt to a different credit card giving you time to pay it off without paying high interest. Therefore, you want to make sure you can pay off the balance in the time allotted. If you can’t, you will be charged the interest

that you just avoided.

Balance Transfer (continued)

The best balance transfer offers are reserved for those with the best credit score. Therefore, make sure you

check your credit report to ensure you are approved for the card that you apply for.

It is important to get your spending habits in check before you initiate a balance transfer as it is opening

another line of credit. If you are not committed to paying off your debt, a balance transfer is not right for you.

8. Change Your LifestyleThe last but most important strategy of paying off your

debt is to change your lifestyle. If you don’t change your lifestyle, you will make the same mistakes that originally

got you into debt.

Here are a few rules to live by while staying out of debt:

• Spend less than you earn• Differentiate your wants from your needs• Don’t try to keep up with the lifestyles of others• Focus on your long-term goals instead of your short-term wants.

Contact your nearest Partners 1st office for more information or visit

www.partners1stcu.org.

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