When it comes to debt, most people are familiar with the idea that a balance owed must be paid off as soon as possible. With that said, how do you know what areas of debt you should focus on and which you can leave for later?
The Basics of Debt
Debt is simply a financial obligation that must be repaid. Typical forms of debt include credit card balances, auto loans, mortgages, student loans, and personal loans. Debt tends to compound on itself with interest rates and longer repayment schedules, making the situation worse than it already is.
Why Break Free From Debt?
There are many reasons to get out of debt, but most focus on the psychological benefits of regaining financial power and reducing stress in your life. After all, not having a monthly bill will make you feel better.
Short-term Benefits
In a time of need, credit card or personal loan debt can become your lifeline. For example, if you have an emergency and need to replace a cup or flat tire on your car but do not have the money on hand to pay for it, personal loans can help get you back on the road. However, the opposite is true as well. If you run out of money, you can use your credit card to take care of a situation, but it will significantly harm your budget.
Long-term Benefits
Breaking free from debt is one of the best moves you can make for your future financial well-being. Let’s face it; credit card debt builds a tremendous amount of interest that will cost you dearly over time. You can save more money in the long run by getting out of credit card debt while the interest rate is still low.
Tried and true ways to break free from debt
As with any endeavor, the chance for success is directly linked to how much effort is put into it. The following debt payment strategies work for two reasons. First, they do not require drastic changes in lifestyle or spending habits. Second, they offer concrete steps to increase your income and decrease your level of debt.
Live like a college student – It may sound cliche, but it helps to live like you’re still in college again. You will have to be on a tight budget, which can lead to a lot of extra money. For example, many students work part-time jobs and work twice as much for the same amount of money. In other words, if you live like you’re still in college, you will look at your financial situation differently which will help you become debt-free.
Focus on one account – It is a common misconception that all debt is handled similarly. With that said, you must focus on one account at a time instead of trying to handle everything simultaneously. For example, if you have two credit cards but only one with high-interest rates, you can focus your attention first and then move on to the second account later.