Debt has become a dirty four-letter word of sorts. People don’t want to talk about it, and yet it consumes and frustrates so many of us. Fear not though! RMLEFCU is here to give you a few tips for paying off debt and help you along the way.
Plan and Budget
Even though it may be intimidating and seem impossible to dig yourself out of the debt hole, if you learn how to take control of your finances and come up with a game plan, it can be a lot simpler than you think. A simple way to start, is by gathering the balances and interest rates from your various credit cards and loans. Once you have a good idea of how much you owe in total, then you can begin to come up with a budget and plan of attack.
To create a budget, start out by making a spreadsheet that includes your monthly income and expenses. Then, go through the expenses and see what costs are truly non-negotiable and which you can live without – at least until you are debt free. This will loosen up some extra cash that you can put directly towards paying off your debt, getting you one step closer to financial freedom. Check out the new budgeting tool in the RMLEFCU online banking portal. This handy feature integrates with your spending to help you plan a budget and stay on track.
Tackle the Most Expensive Debt First
Now that you have decided how much you owe in total, it’s time to take a closer look at the different interest rates on various loans and cards. Sort them from highest to lowest interest rate and focus on paying off the higher ones first, by putting more than the minimum payment down on them each month. By doing this while continuing to pay at least the minimum on all others, you will lower the amount of interest costing you the most money every month.
Another option is to consolidate your high interest debt into a lower interest option. If you have credit card debt, consider transferring the balances on your higher interest credit cards to a lower interest RMLEFCU credit card for no additional fee. If you have high interest loans such as student loans or an auto loan, talk with a loan advisor about paying them off with a lower interest RMLEFCU option such as a HELOC, personal loan, or by refinancing.
Pay More Than the Minimum
The minimum monthly payments on credit cards and loans are usually 2-3% of your total outstanding balance. In order to make a dent in your debt, you must pay more than just the minimums. Otherwise you are just dragging out the repayment period causing yourself more stress and costing yourself more money. The longer it takes you to repay charges, the more interest banks charge you. Don’t fall into this vicious cycle. Instead, try paying the minimum payment every other week or pay double the monthly minimum. For example, if your minimum payment due is $100, try paying $200 or more whether it’s all at once or sporadically throughout the month. This will allow you to avoid interest charges and improve your credit score. Win-win!
Increase your Assets
If you’re following all of the above steps and still don’t feel like you’re getting un-buried as fast as you would like, it might be time to consider other options to increase your cash flow. This can be anything from selling unnecessary items you may have accumulated over the years, or even getting a second job. Depending on how much money you need and how much time you are willing to invest, each of these options has its pros and cons that should be taken into consideration with your unique situation.
Paying off debt doesn’t have to be intimidating and frustrating. If you develop a solid plan and stick to it, becoming debt free is completely possible for anyone. If you want more tips for paying off debt or would like to speak with one of our expert representatives, give us a call at (303) 458-6660 or visit our website.