According to a recent article from NerdWallet, the average American household carries a credit card balance of $16,748. Regardless of your own personal amount of debt, you need to come up with a plan to pay it off.
Last month, when filling out your net worth sheet, you wrote down all of the debts that you currently owe. Your list of debts should include both the amount owed and the interest rate associated with the debt.
Paying off debt should be included in your budget planning. You may need to scale back on some expenses until your debt is more manageable.
Here are two examples of common methods that are used to eliminate debt:
Start with the Smallest Debt
If you’re the type of person who thrives on checking things off a list, this method may be for you. Focus on your smallest debt first and then work your way up. During this time, you should continue to be making regular payments on other cards to avoid late fees.
Start with the Highest Interest Rate
With this method, you would start with the debt with the highest interest rate and then work your way down. This may cost more up front, but you’ll ultimately save more money on the other side. This method usually gets you out of debt quicker, but is without the psychological rewards of closing accounts quickly.
Becoming debt free can be difficult, but it all starts with a plan. Once your debt is gone, you can begin living your life the way that you want to.
You can’t be in debt and win. It doesn’t work.
– Dave Ramsey
Come back next month for a new money work-out to help get your finances in shape this year and check out our previous posts: