For most of us, financial security doesn’t occur spontaneously. We have to work at it and like any other worthwhile achievement, you gotta have a plan. Paying down debt is an essential part of creating a bright financial future, and without a debt payoff planner, it will be harder to reach your goal. Here are some essential steps you can take today to create your own debt freedom plan.
Make A Realistic Monthly Budget. You can’t pay down debt if you don’t know how much you’re spending each month. List everything — and we mean everything — you spend money on. This includes the obvious things like your rent or mortgage, car loan, gas, food, utilities and entertainment. Where many budgets go off the rails is failing to account for “other” spending. This includes occasional but necessary items, like the auto insurance you pay quarterly instead of monthly and taking your dog to the vet, and less essential things like snack foods from the convenience store while you’re filling up the car.
Inventory Your Debts. How much do you owe on your house? How much do you owe on your car? Still paying off last summer’s family vacation? Or Christmas presents? Again, it’s the things you forget to list that will trip you up. When you total it all up, the total may shock you. Don’t be intimidated; use the size of the mountain as motivation to summit and conquer your obligations.
Find Money In Your Budget To Pay Down Debt. Now that you know the lay of the land, get serious. If there was a lot of extra cash sloshing around in your budget, you probably wouldn’t have much debt. You need to find ways to reduce expenses or increase income (or hopefully, both). Then be single minded about using the extra money to directly pay off debt. Whether you use the “snowball” method or just pay off the high-interest debt first, if you’re going to win this battle, you need to direct all available firepower on the enemy.
Look At Biweekly Payments To Conquer Debt Faster. The traditional folk song says it best: “We worked through spring and summer / the winter and the fall / but the mortgage worked the hardest, and the steadiest of us all / it worked on nights and Sundays / and it worked each holiday / it settled in among us and it never went away.” Your home mortgage is probably your largest single debt. After that, it’s likely your car and/or student loans. Recurring debts like these can often benefit significantly by reduction and faster payoff using biweekly payments.
Here’s how you do it: Rather than paying the normal monthly mortgage amount, you’ll pay half that every two weeks instead. The extra money gets applied to reducing principal. And since interest is charged on the remaining balance, the lower that balance, the less you end up paying in the long run. For example, if you borrowed $300,000 to buy your home with a conventional 30-year mortgage at 4%, using biweekly payments would save you over $33,000 over the life of the loan — and you’d pay it off more than 4 years sooner!
Use these tips to create your own personal debt payoff planner. The first step in overcoming debt is knowing how much of it there is and what resources you need to pay it off.
AutoPayPlus can help you pay down debt faster. Withdrawals from your account every other week fit conveniently with paychecks and your monthly budget, while an extra half payment twice a year toward principal reduces interest over the life of the loan. Please visit our website www.autopayplus.com to learn more.