Pay Off Your Debt and Get Savings Back on Track
Tips on Paying off & Minimizing Your Debt
Submitted by Lara Coviello
When people think of four-letter words, debt is not one that springs to mind. But it should. American consumers are among the most indebted people in the world. High-interest credit cards. Mortgages. Student loans. Car loans. You name it, we’ve got it.
We swipe our credit cards with happy abandon, taking trips to Argentina or to the mall and buying houses we cannot afford. The problem is that, thanks to this enjoy-it-now, pay-later approach, we’ve succeeded in racking up massive amounts of debt.
Here is a reality check: According to federal government data released in April 2014, the average U.S. household owes $7,087 on its credit cards. If you narrow that down to households with debt, the average outstanding credit card balance is a staggering $15,191.
That’s right: $15,191.
And that does not even include the average mortgage debt of $154,365 or the average student loan debt of $33,607.
Big Debt/Big Problems
The problem with debt is that it can be a savings killer. Take credit cards, for instance. Unless you pay it off in full every month, credit card debt just keeps growing. And you keep paying. But when you send in just the minimum, all you’re really paying off a fraction of your bill and a whopping dose of interest.
If your savings are not where they should be and debt is ruling your life, there are a few things you can do, sooner rather than later, to get your spending and savings habits back on the straight and narrow:
Tips to Reduce Debt
– Limit yourself to two or three credit cards. Choose two or three and cut up the rest. Nobody needs 10 – or a thousand – credit cards, and you surely do not need a card for every single big-box store in town.
Easy credit – and sneaky fine print – is the reason Americans are so saddled with debt to begin with. With a couple of cards, you should be just fine. When deciding which ones to keep and which to toss, keep an eye out for cards that offer low interest rates, good rewards or year-end cash back. Pay off credit card debt in full every month. In other words, do not charge more than you can afford to pay.
– Control your spending. This is easier said than done, but nevertheless, it is key to paying down debt. It is not sexy to dine-in most nights or to shop at discount clothing stores, but it is even less sexy to be up to your eyeballs in debt. So, cut your expenses where you can and come up with a budget you can live with. If you cannot live within your means, you will not get a handle on your debt.
– Contribute to a retirement plan. If you are one of those lucky people whose company offers an employer-matched retirement plan, sign up and start saving. What’s more, make sure your savings are automated. That way the money is gone before you can get your hands on it. If you cannot see it, you cannot spend it.
– Keep socking away money every month. You can still save money for retirement (or a dream vacation to Tahiti) while tackling the debt monster. Even if it is only $100 a month to start out, it is still $100 that you are saving and not spending. And that is empowering.
– Know the terms of your student loan. Stay on top of how much you owe, both principle and interest, what your minimum monthly payment is and when it is due. If you start to feel financially overwhelmed, look for other repayment options, including loan consolidation to lower your monthly payment and interest rate.
Even after all this, it is important to remember that not all debt is bad. If you are taking out a loan to buy a house or go to college, that is actually good debt. Where it becomes bad debt is if you overreach and borrow more than you can afford to repay. Being an over- borrower will sink you further into the debt hole, so be smart, shop around for the best rates, and borrow only what you need.
Lara Coviello, MA CFA is a managing partner with Auctus Wealth Management.
She began her career as a research and statistical analyst in 2004. She started in the financial services industry doing risk assessment and market analysis, and researching public and privately held companies, and soon expanded her role to include portfolio management.
For more information on Lara visit Auctus Wealth Management HERE.
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