Master Your Debt
Episode #3 of the course Master your money by Jenn Schilling
Welcome back for Lesson 3! I hope you’ve created your monthly budget and gotten a good handle on your spending! Today we’re going to talk about debt.
How to Pay Off Debt
Now, debt can be a scary thing, especially if you have a lot of it. But you can wrangle it and pay it off! If you have debt from multiple sources (for example, multiple credit cards or student loans), the first step is to figure out which source has the highest interest rate and begin paying that down first. Then move on to the next highest interest rate and so on until you’re able to pay everything off.
Write down all your sources of debt, the amount that you owe, and the interest rates for each one. Then rank them from highest to lowest interest rate and figure out how much you can pay each month toward the highest interest amount. Start by making as large a payment as you can to that account every month while making the minimum payments toward your other debts and then work your way down the list until you are debt-free (and be sure to celebrate the day you reach debt-free status—you deserve it!). If you’re not able to completely pay down your debts, make sure you’re at least making minimum payments every month.
If you do have debt, put all your focus into paying it down as quickly as possible. The longer you take to pay things off, the more you’ll end up paying to credit card companies and other loan agencies. If you have any amount of debt, view it as an emergency that needs to be eliminated as soon as possible! Debt should be included and added to your monthly budget. In the example we discussed yesterday, I gave a $100 budget for clothes. But if I have credit card debt hanging over me, I should instead allocate that $100 to paying off my debt and forgo new clothes until I can pay off my credit card.
Another way to tackle debt is to increase your income and put the extra income toward debt payments. You can increase your income by finding a side gig/hustle, selling possessions you’re no longer using (clothes, books, etc.), or providing services (babysitting, dog walking, etc.). This might be a great way for you to pay down debt without having to change the way you’re spending your current income.
Avoiding Debt in the Future
The budgets that you set yesterday will allow you to better track your spending and avoid debt in the future. In reducing spending and future debt, it is very important to take a critical look at purchases and figure out how to save money, which we will discuss in upcoming lessons. For now, let’s talk about a general idea—don’t live beyond your means.
Try to live below your means and put any extra money toward saving. Credit cards can be good for getting rewards such as cash back or travel points, but they should be paid in full every month. Don’t charge more to a credit card than you can pay off each month—doing so is a recipe for increasing debt and sending more of your hard-earned money to credit card companies instead of keeping it for yourself.
I am not suggesting that you should never spend money on yourself—it’s good to go on vacation or have a spa day or go out with friends. It’s just important to do these things in a way that fits your income and budget. Debt is not your friend! Tomorrow we’ll talk about the opposite end of the spectrum—savings! Until then!
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