Are you struggling financially with your current debt and having difficulty understanding it? You are not alone. The average American also has debt and carries this load each month. Being in the financial field for over a decade, I, Coach Danyell can help you start the process of paying down that debt. Keep reading for six steps to understand your debt and begin the process of being debt free. Let’s discuss…
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First, before you begin to pay off balances, you should understand the type of debt you have accumulated. You should understand how much you do owe. Once you calculate this figure, it may be astonishing for few, but it is needed to begin this process. Once you understand the total, it will help in a later step to continue the snowball method.
Next, after you have established the total amount of debt owed, you need to learn about your debt. What are your interest rates, benefits, and annual fees? Knowing your interest rate is beneficial because if you carry a balance on an interest-bearing card each month, then you are being charged interest on that balance. Basically, the credit card is costing you money each month, which we want to circumvent. Also, understand the benefits of your debt. Does it accrue points, cash back, or miles? Most credit cards will provide some benefits, which are worth having, however, if you are being consumed by debt and unable to pay off your balance, this is not benefiting you. It is also great to know if your credits cards have an annual fee, which is added to your card automatically annually.
Third, figure out the minimum payments for each debt you have accrued and pay over that amount. If you have a card that adds interest each month, then you want to counter the interest being added, which will help you pay down the balance. This is very important! If you choose to only pay the minimum, then interest is still added which lowers the actual amount you have paid.
Fourth, work towards paying off the smallest debt first. In the first step we established the total amount of debt owed, so it should be easy to spot this figure. If it is low balance card, begin to work towards paying off the balance, which will be more than the monthly payment due each month.
Fifth, once the smallest debt is paid off, take that amount, and pay it towards the next smallest debt each month. If you do currently have a budget, it should be easy to migrate these funds to the next item, instead of spending. The goal is to pay off debt and this snowball method works! This step should continue until all or most debt is paid off.
The final step, which I would recommend if applicable, is to pay off your debt monthly. If you can afford to pay off your credit cards or line of credit each month, then do so. This step will help to increase your credit score quickly and shows you can afford your current financial responsibilities. If unable to pay off the full amount, then keep your usage below 30%. As your usage gets higher, it lowers your credit score and flags as high usage.
Utilizing these steps will ensure you increase your credit score and pay off your debt in a timely manner. Implement a plan, be consistent, and it will pay off.
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