People are constantly searching for ways to reduce debt but often overlook saving as an important part of the plan. Many people don’t realize that they are taking a financial shortcut by not saving money. Instead, they think that more spending will make them feel better. In reality, the more money they have to pay off debts, the better off they will be financially.
If you want to put together a good financial plan, you should start by putting together a spending plan. To help you with this task, get a copy of your monthly household budget and categorize everything that you can identify as “monetary” or “esthetic”. Once you have categorized all of your household bills, it will be easier to see which expenses can be cut or changed so that they will be easier to pay off.
When it comes to paying off debts, there are three main options: paying them off on a fixed payment schedule, paying them off as a lump sum, or putting together a payment plan that combines both options. For someone who is looking for ways to reduce debt, putting together a fixed payment schedule may be their best option. With a fixed payment schedule, you will just know what money you have to spend each month, and you won’t have to worry about a lot of guesswork.
For someone who isn’t looking for a fixed payment schedule, there are still a few ways to reduce debt. For one thing, you can always start by making minimum payments on all of your credit card accounts. Minimum payments are good ways to lower credit card debt because the interest rates are usually less than if you were to pay off each of your credit cards at once. By paying off just one at a time, you will slowly start racking up some savings. Of course, there are things to consider when choosing how much to put toward your credit card debt. Ideally, the payments should be made even as you are taking steps to reduce your debt.
If you aren’t able to do that, try making more than minimum payments. You could do this by increasing your monthly expenses and cut down on other non-essential spending. Doing so will help you reduce credit card debt faster, because you will be able to make larger payments and save money faster. Just make sure that you still have some room in your budget to put towards your bills.
Another way to reduce your debt is to stop using your credit cards. Most people who carry a balance on one credit card to use it to purchase something they can’t actually afford. When you use your credit cards, you are incurring fees and interest charges, which add up to more money than you actually have to spend. This only works to increase your debt further, because you are now borrowing money you don’t have. Stop using your cards, and you will immediately reduce the amount of interest you pay.
Finally, start saving money for the future. Saving for the future means you will not be living off of your current income. Therefore, start saving towards your retirement, or charity, or college funding. By putting money away for the future, you will have money to help you with your current debt problems, because you won’t have to use it right away.
Once you have done all three of these things, you will finally be able to retire. At that point, if you had taken all of the steps to reduce your credit cards and the interest rate on them, you would be living comfortably off of your retirement income. All three of those things combined will result in thousands of dollars in extra money each month, which you can use to eliminate that debt and stop using your credit cards.