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Getting out of excessive debt is a great first step towards financial independence and a successful retirement plan. Here’s a few tips from us on creating a plan to get back on track with your financial plan.
It is usually worth paying down higher interest debt first. That means things like credit cards and personal loans are normally your top priority to pay off before car loans or your mortgage.
However, interest rate may not always be the most important consideration. For example, federal student loans have very flexible payback rules that may reduce your payment if your income drops. Federal student loans have income based repayment plans, and may see payment requirements paused, like we have during the coronavirus epidemic. Federal student loans also have options for debt forgiveness, such as public loan forgiveness, or simply after making a certain number of payments over time.
Because of this flexibility, you may find it more important to pay down other debt, like a car payment, even if the interest rates are lower.
Reducing the interest that you pay on your debt can really help make payments manageable.
One way this is done is through loan consolidation – Typically using a personal loan. Personal loans exist that may help consolidate higher interest debt such as credit card balances into a lower rate.
Depending on your credit and type of debt, you can also look at options like balance transfers, which can give you a short term reprieve from accumulating interest. But make sure you have a plan to pay off the debt, as many of these balance transfer offers will eventually hit you with higher interest in the long run if you don’t pay them off quickly.
Lastly, get yourself on a budget. Know how much you are spending, and what you can afford to pay each month towards your debt.
Getting out of debt can be a long process, but getting a plan together now will get you on track to not only get rid of debt, but also start on the path to a very successful long term plan.
Looking for more on paying down debt and how that goal fits in with your overall financial plan? Below are a couple other blog posts we have on debt that you may find interesting: