Time and time again, people put off getting their financial lives on track because they are too busy. It’s ironic that sound personal finance habits often result in spare time and peace of mind. Those two resources are just what you’d want if you were trying to turn your financial ship around. For people whose finances are out of control, this chaos tends to spread to other areas of life. If that sounds like you, you are probably looking for something simple that can help you make a change, something that you can handle every day and that doesn’t take a lot of research and understanding to figure out.
That thing is debt. Don’t get it. If you have it, get rid of it. That sounds simple, but it’s not. We’ll talk about how debt works, as well as different ways to get rid of it, or never get it in the first place.
First of all, what is debt? Of course, it’s money that you owe to someone else, usually a large financial entity. We might owe student loans to a lending company, credit cards debt, or the leftovers from those payday loans in Toledo. The result is always the same. You’ve got a lot of money you’ve got to pay back, on top of your everyday expenses. For people who live paycheck to paycheck, this can feel all but impossible. But it’s not.
You’ve got to start by doing more than the minimum requirement. Every debt you have will have a minimum monthly payment. If you just pay that minimum every month, you’ll usually be paying that debt off for years or even decades. As this time goes by, you’ll pay a lot of extra money in interest, sometimes double or triple the balance of the original loan. A lot of lenders hope you just focus on the monthly payments, without thinking about how much extra you’re being charged in interest and fees (APR – their profit).
Use every dollar you can spare to pay off your smallest debt. Another strategy is to focus this first volley of funds on the debt with the highest level of interest. Whichever you choose, keep using these extra funds to nuke this debt until it is gone. Then take that money, as well as the minimum payment you were making every month, and add it to the next-highest debt. Go up the debt ladder until they’re all gone.
Now that you know you can spare that money each month, don’t stop now. Pay yourself, using a savings account. As that savings account grows, that will be your emergency fund. It can help you pay for life’s surprises, or cover your expenses if you lose your job. When you have a fat emergency fund saved, you can start to think about investment – the only reliable way to make money without having to actively work for it. But it all starts with paying off that debt. It can be a hard thing to change when your life is crazy, but if there’s one thing to learn no matter your personal chaos, this it it.