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Start Paying Off Debt Now

There seems to be a major trend in the U.S. where Americans are racking up more and more debt. According to the Federal Reserve for the last year and a half the total consumer debt has been hovering just over $4 trillion from January 2019 to present. According to Experian last year at this time, Americans had $830 billion in credit card debt alone. That was a 6% increase year over year giving each person an average of over $4,000 in credit card debt. In addition to credit card debt, personal loans, car loans and student loans are on the rise.

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Almost everyone would like to be debt free, yet few are. How can one start the process to pay off debt? More importantly, how do you stay out of debt? Here are a few tips to use to help escape the trap of owing someone else money.

Make a budget

In order to start the process of paying down debt, monitoring cash flow is key. Figure out how much income comes in reliably every month, then make a list of all payments going out each month. Making cuts is almost surely possible.

A few minor adjustments can go a long way. Start making coffee at home instead of going through the coffee stand every day. Maybe try sticking to just one streaming platform for TV watching. Make meals at home for a month without eating out. Making a budget and reviewing spending may also reveal some surprises you weren’t aware your money was going towards. At first this exercise may be hard, but the sacrifice will be well worth it in the long run.

Make a plan

There are two common ways to pay down debt: 1. Debt avalanche, and 2. debt snowball. We’re not going to debate which is better for they both work. The important thing is to pick a plan and stick to it.

Debt avalanche is paying down the debt with the highest interest rate first, then moving on to the next highest, and so on. The debt snowball method is paying off the smallest balance of debt first, then moving up to the next smallest on the list.

While a debt snowball doesn’t save a borrower on extra interest payments like the avalanche method does, the snowball effect can have a good psychological impact. One quick and small victory at a time can compound quickly to the next small victory until there is only one big payment left, providing motivation along the way to keep going. But again, the point is to pick a plan and then stick to it.

Avoid new debt

After determining a monthly budget, put all the credit cards away. Start using cash. With a new budget in place and an allotment of cash dedicated for certain things, it will be easier to not give in to non essential purchases. As your cash balance gets lower, making wise decisions with money will be easier than just throwing it on a card and figuring it out later. Once the cash runs out, that’s it. Don’t spend more than you make and do NOT use the credit card on a non-essential item that can wait.

Stay the course

Taking these steps can be very challenging and daunting, but taking back control of your hard-earned money brings a feeling of peace-of-mind. You are in control, not the bank. The strapped-down and trapped feeling of not having enough money will slowly go away.

And once out of debt, take some time to remember how it was before when you owed someone money. That can provide the self-control and discipline needed to stay out of debt. When all liabilities are paid off, don’t slip back into old habits. The money used to pay down all the debt can now be the money you use pay your future self. Take that amount each month and put it in savings. Build up an emergency fund and a retirement fund. Don’t buy something you can’t afford, and stick to your plan!

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risk and you may lose your principal.

Eric Martin
Investment Advisor Representative at Concinnus Financial
Eric Martin is an Investment Advisor at Concinnus Financial. He works with individuals and small businesses to create a personalized investment portfolio and helps with financial planning. To contact him you can email ericm@concinnusfin.com or call 208.755.9430.