Author: Better Path Financial | Categories: Credit Card Debt , Debt Consolidation , Debt Relief Program , Debt Settlement , Financial Service Consultants , Personal Finance
We're a month into the brand new year! An opportunity to reassess your financial resolutions with an open heart, renewed energy and all the potential of new beginnings.
Whether 2020 was a great year financially or a difficult one, the turning of the calendar to a New Year is an opportunity to push the re-set button. Something we sometimes forget as the days and months slog forward and we feel incapable of changing anything, is the fact that the way things are is not the way they must be. You can initiate change at any time, but at some times of year that is easier to believe than at other times. The early months of a new month are one of those change-times. Make this the year you create financial resolutions you can keep.
A budget is simply a way of figuring out exactly how much you MUST spend each month to live and where your money is currently being spent, so you can then determine how you can start saving, pay down debt, and play with the rest.
Once you’ve got that budget in place, it’s time to look at all the small things you do every day that may be detracting from your ability to save. Things like that coffee you grab on the way to work, the lunches you have out, or impulse purchases. The small things that don’t cost much in the moment have a way of adding up in the long run. In the article Packing A Lunch Will Save You More Than You Think from Life in Charge they put an inexpensive $10 a day lunch into $200 a month perspective.
It’s difficult to put a dollar amount on impulse purchases, but $5, $10, $30 here and there will also snowball into hundreds of dollars over the months. Instead of buying whatever you want, when you want it—hold that thought. We are not saying never buy the things you want. We’re saying take note of your potential purchases and give yourself a cooling off period. Choose whatever length of time you want, a week a month, then come back to the thing that seemed so alluring at the moment. Is it really worth the money you were willing to spend?
"Don't tell me what you value, show me your budget, and I'll tell you what you value." Joe Biden
According to Nerdwallet, “The average U.S. household with credit card debt has an estimated $6, 929 in revolving balances, or balances carried from one month to the next.” High interest rates make it extremely difficult to pay those debts off. Even worse? Interest rates rose 4 times (!!!) in 2018 and expected to continue rising. For many, it’s going to get more difficult to keep up with minimum payments. If there’s one thing you can do this year that will positively impact the rest of your life, it’s use the extra money in your budget to start paying down your high interest accounts.
There are several ways of working on this. Two popular ones are the debt avalanche method where you pay down your debts in order of interest rate. According to Investopedia, that means, “A debtor allocates enough money to make the minimum payment on each debt, then devotes any remaining debt-repayment funds to debt with the highest interest rate.” Once that account is paid off, it’s time to move forward and tackle the next highest interest rate account.
The other is debt snowball method. Wikipedia describes the snowball method as, “A debt reduction strategy whereby one who owes on more than one account pays off the accounts starting with the smallest balances first, while paying the minimum payment on larger debts.” Again, once the smallest debt is paid off the person moves on to the next smallest debt.
Or, instead of trying to pay down several debts at once, another way to tackle the problem is to consolidate everything into one, manageable payment that offers you short- and long-term relief from your debt. Better Path Financial is here to help you figure out debt solutions.
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