How to pay down debt and take control of your financial life
Paying down debt is a stressful but rewarding process. There are many effective strategies for doing so and every situation calls for a different solution. Whether you have credit card debt, student loans, car payments or a mortgage, having a strategy in place is key to getting them paid off. Instead of following your friend’s advice, it’s important to always consider what’s in your best interest. More likely than not, your temperament will better suit one strategy over another, because everyone has a different mentality when it comes to achieving goals. If you’re trying to figure out the best debt repayment strategy for you, but don’t know where to start, consider the two most popular debt payoff methods: the snowball method and the avalanche method.
Pay the minimum monthly payment on all debts (credit card: $80/month, car loan: $180/month, student loan: $250/month)
Allocate extra money to the debt with the smallest balance first (credit card: $2,000, car loan: $4,500, student loan: $21,000)
After you pay down your smallest debt (credit card: $2,000), start applying its past monthly payment ($80), and any extra money you may have, to the next smallest debt (car loan: $4,500), and continue until you are debt free
Pay the minimum monthly payments on all debts (credit card: $80/month, car loan: $180/month, student loan: $250/month)
Allocate extra money towards the debt with the highest interest rate first (credit card: 18.99%, student loan: 4.8%, car loan: 3%)
After you pay down the highest interest rate debt (credit card: 18.99%), start applying your past monthly payment ($80), and any extra money you may have, to the next highest interest rate debt (student loan: 4.8%), and continue until you are debt free.
Personally, I utilize the snowball method by knocking off my smallest balance first, then working my way up to my largest balance. This method works best for my mentality because it promotes small wins from the start, and eventually bigger wins as time progresses. Furthermore, having a strategy in place motivates me to stay committed to paying off my debt and helps me build an effective budget and timeline to achieve it.
You may have an idea of which method would work best for you, but it is important to remember that getting out of debt involves more work than simply deciding on a payoff strategy. It takes time, budgeting, and commitment. Plus, you must constantly manage and adapt your strategy to your ever changing life and financial goals. Choosing the snowball method, the avalanche method, or a combination of the two is a great place to start when building a debt repayment plan, and having a plan in place is the best way to get on track financially. Take control of your life by implementing a strategy appropriate for your situation. You’ll have a clearer picture of your future and may find that achieving your goals is closer than you think!
Please note: Financial advice should be tailored to individual circumstances and the content of this article should not be viewed as recommendations. This article is not an endorsement of any particular product, service or organization; nor is it intended to provide financial, tax or legal advice. It is intended to promote awareness and is for educational purposes only. The specific applications and services noted are not necessarily endorsed by John Hancock or any of its affiliated businesses.
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