It's no secret that money can be stressful and is one of the top stressors on individuals, relationships and our ability to give back to our communities. Debt can be one of the reasons for that stress and play a huge roll in your health (physical, mental and emotional) and in the way you interact socially.
Debt can also prevent us from getting ahead financially. Whether one larger debt or a combination of several small ones, it can be difficult to make payments to eliminate that debt while still saving money for your goals. What is the key to eliminating debt and having financial freedom to save more money for your goals?
Don Hendrickson, Conexus Member Experience Coach, says there are three things to know to help you succeed in eliminating your debt:
- Being aware;
- Creating a budget; and
- Setting up automatic transfers.
"It's key to understand how much you owe and the interest rates on each area of debt so that you can create a realistic plan on how you'll eliminate this debt," said Hendrickson. "As part of this plan, you need to create a budget that sets out a schedule on how you'll spend your monthly income which should include your debt repayment amounts. If you're struggling to find money in your budget for your debt repayment, look to see if any of your want expenses such as entertainment can be reduced."
Once you've created a plan, set up automatic money transfers to have your debt payments come directly from your account each payday. This helps reduce the temptation on spending elsewhere and keeps you on track to reaching your set goals.
When it comes to multiple debts, Hendrickson says tackling your highest interest debt first will save you the most money in the long run but you may also want to consider paying off a smaller balance first to help motivate you.
"There's some research that shows paying off a smaller balance first gives you the feeling of success and will help motivate you to continue," said Hendrickson. "For example, if you have a $1,500 line of credit balance and $10,000 in credit card debt, tackling the $1,500 will give you the feeling of success and may also provide a great learning experience that you can then apply to tackle your other debt."
When it comes to avoiding debt, Hendrickson said there are many things you can do including:
- Living below your means and not spending more than you earn.
- Don't feel the need to 'keep up' with those around you. Only do what you feel comfortable with and that your budget allows.
- Pay yourself first by making a habit to take 10% or more of your income and put towards your goals including an emergency fund. Having an emergency fund will ensure you're prepared for whatever curve life throws you.
- Sit down with a financial advisor at least once a year to review your short-, medium- and long-term goals and make a plan, or re-evaluate your existing plan, to ensure you're on your way to successfully reaching those goals.
Debt can be stressful and coming up with a plan will not only reduce this stress but also help you towards financial freedom. Be sure to contact your financial advisor for assistance. Not only will they be able to help you come up with a plan to eliminate your debt, but also work with you to set a plan for your future. There’s no better time than now to take control of your finances – get started and make tomorrow, today.