If you’re drowning in high interest debt yet realize the need for saving it’s a tough row to hoe on how to accomplish this, but not impossible. Most high interest debt is created by shiny, easy to use credit cards that come with the promise of building up air or cruise miles.
You get one air mile for each peso spent. Some even promise money back. Hey, that could be good. At least you get something back for spending your money through them. Check out the interest rate on those credit cards and the promise of flying or cruising to an exotic destination may not be so appealing and even attainable in the near term.
Many times you could have bought the ticket yourself much cheaper than the high interest you’re paying. Credit card interest can be as high as 29% or more and if you don’t pay off your charges in full each month that’s money down the drain.
Develop a budget and stick to it. If you’re married, work together on this. Getting your financial house in order is much more fun and easily done if you work as a team. Two can pay off debt more quickly than one. But, if you’re not careful two can create debt more quickly than one as well.
Compare your debts and their interest rates with your savings account interest rate and if your debt rates are higher, you’re losing money. Develop a plan to pay down as quickly as possible the debt with the highest interest. Then, concentrate on the others until you’re debt free. When you pay off the card with the highest rate don’t use it again.
Look for extra money to pay off the debts. It could come from cutting back on any luxury items you’re now enjoying or postponing that vacation until next year. It may take months or even years but the key is to avoid adding additional debt and sticking to your plan. If you pay an extra $100 on a debt that has 18% interest you’ve saved $18.
If you pay only the minimum required you’ll pay off the debt in the maximum amount of time.
Borrow money from family or friends only if there’s no other alternative of your getting out of debt that’s become an unbearable burden. Even if you have to pay them a lesser interest rate it could be a solution. If you resort to this, pay them back without hesitation as soon as possible. Don’t lose a good friend over money.
Financial experts advise families to allocate between five and ten percent of their income toward savings and this should be your goal once you’re out of high interest debt. It doesn’t make good financial sense to pay more interest on a debt than you could earn in a savings account. Consider talking to a financial consultant about how better to manage your money.
Find a balance between contributing to debts and savings. Actually, you can think of paying off a debt as an investment. A clear examination of your financial situation should point you down the right debt free path. Being debt free can be a wonderful feeling both mentally and financially.