When it comes to spring cleaning, the first step is evaluating what needs to be tidied up. With finances, it’s important to assess the possible “mess” you may have made with your debt. Just like you break out that rarely-used broom for spring cleaning, paying off debt means it’s time to revisit that budget you set up for yourself. Depending on the amount of debt you have racked up and unexpected costs you may have encountered, it’s likely that your budget could use some recalculating. A budget is a necessary tool for anyone looking to reach financial security, and paying off debt is almost impossible without a strategy for future spending.
We all have debt of some form, like credit cards, loans, or a mortgage. While debt is necessary for good financial health, too much debt can get out of control very quickly and create chaos in your financial well-being.
To get rid of debt, it is important to understand your debt-to-income ratio or DTI. The calculation adds up your outstanding debt and divides it by your gross income. A good goal for DTI is to be below 36 percent. When your DTI is low, it shows lenders you can handle financial obligations.
OK, so you’ve mapped out how to reduce future costs and avoid encountering new debt. But how can you reduce the debt you’re dealing with now? While it may be impossible to take care of all your debt by the time spring comes to a close, a few financial strategies can help you at least create a dent in your overall balance. Take a look at these three easy ways to spring clean your debt:
Pay a Little More
Paying more than the monthly minimum requirements is a smart way to start chipping off your overall debt. In fact, every dollar you pay over the minimum payment requirement goes directly toward the principal of your loan. Just a few dollars more each month can make your debt disappear faster and may improve your credit score in the process. Calculate your payoff.
A quick and efficient way to get out of debt is to consolidate high-interest loans with something like a personal loan. With a lower fixed rate and an easy application process, personal loans can help you achieve financial health and debt relief. By combining all your outstanding high-interest debt into one monthly payment, you can focus on one payment with a much lower annual percentage rate or APR. Whether your goal is to pay off debt while saving money on interest or you just want to get rid of overall debt faster, consolidating is a responsible step towards financial security. Apply for a personal loan.
Transfer a Balance
If you carry a balance on a high-interest credit card, consider a balance transfer to a new credit card with a better rate. This strategy can help you avoid those monthly payments that never seem to reduce the balance. In turn, you will be able to pay off debt faster because payments will go towards your bill instead of those high-interest fees. Transfer a balance.
When you know how to get rid of debt, you take control of your financial freedom. Let Discovery FCU assist you by providing services and advice for your financial future. Not yet a member? Join Today!