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- It’s never too late to start paying off your debts.
- Financial planners suggest starting by listing all your debts and interest rates, and creating a budget to control your spending and figure out where you can find more money to put toward your debt.
- Once you’ve done that, you can consider options like debt consolidation and working with a professional.
- Need help getting out of debt? SmartAsset’s free tool can find a licensed financial adviser near you »
Paying off debt isn’t easy. But with the right tools and knowledge, it can be a whole lot easier.
And when it comes to paying off debt, there’s plenty you can do with the money you already have and the resources available. Whether you’re working with $20,000 of debt or $2,000 of debt, financial planners say there are several things you can do starting today to work towards paying it off.
Here’s where to start:
List all of your debts and their interest rates
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Financial planner Michael Pappis says that it’s best to "start off with taking inventory of your debt."
Take stock of all the debts on your plate, such as credit card debts, student loans, and auto debt and their respective balances and interest rates. Then, you can start looking at what’s going to be the most urgent, and what strategy to use to pay it off.
With your debts listed, you can get to the hard part: paying it. Pappis suggests the debt avalanche strategy, which focuses "paying off the highest interest rate first, and that’s usually the credit card debt."
Another method, called the debt snowball strategy, pays off small balances first to build some emotional momentum crossing debts off the list.
Whichever strategy suits you better — paying the highest-interest-rate debt first to lessen the amount of money you pay overall, or going for the smallest-wins-first approach of the snowball— the first step for both is making a list.
Scrutinize your spending and make a budget for your spending
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Financial planner Colin Moynahan puts it bluntly: "You got into this because you spent more than you’re making."
In his experience, he says, "the first thing you have to do is control the spending and create a budget." If he sees a client is spending too much each month, that needs to change before much else can. Otherwise, there won’t be much left over to put towards repaying those debts.
If you’re in debt because of overspending, it’s time to take a look at your habits, your needs, and your income. Even if your debt isn’t related to overspending — student loan debt, for instance — a budget can help find more money to free up for payments.
Read more: I saved almost $2,000 just by tracking my money on a spreadsheet
Make sure you’re still saving for emergencies and goals
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If you don’t have an emergency fund, you’ll need to start saving for one — and it can’t wait.
Experts typically recommend that an emergency fund hold three to six months’ living expenses (sometimes up to nine months, depending on your situation) in case you lose your job or have another emergency. It should be stored somewhere liquid and risk-free, and some experts recommend putting it in a high-yield savings account so it can earn a small amount of interest while you aren’t using it.
Having an emergency fund is critical, and could help save you from going into debt again if an emergency or something unexpected happens. If you don’t yet have one, saving for this while paying off debts is crucial.
See the rest of the story at Business Insider
See Also:
- A financial planner says there’s a ‘huge opportunity’ for new investors to make money during a recession, as long as they’re patient
- Here’s how much $1,000 could grow over 5 years in Wealthfront’s cash account, which earns 25 times more than a regular savings account
- 3 financial decisions that will make it harder to retire
SEE ALSO: The 7 best ways to build wealth starting today, according to financial planners
DON’T MISS: A financial planner asks every prospective client to bring the same thing to their first meeting: nothing
Source: Business Insider – feedback@businessinsider.com (Liz Knueven)