Getting out of debt can be a painful hill to climb but the payoff at the mountain top is empowering and life changing. All that money spent on interest payments can now be used to invest for the future and help you achieve your goals. Climbing out of debt can be challenging, but it doesn’t need to be complicated. However, it does take discipline and commitment to a plan. Here are 4 steps to scaling the mountain of debt and taking control of your finances for good.
- Look for lower interest rates: Climbing out of debt is a challenge because those credit card balances are growing everyday whether you are spending or not. In order to make sure that your payments are going towards paying down principal rather than just keeping up with interest shop around for low-interest transfer balance offers or loans. There are often fees associated with transferring balances, but this can often be worthwhile to gain a reduced interest rate if paying down the entire balance is going to take a substantial amount of time.
- Pay Attention to Tax Deductibility: Most forms of interest on consumer debt such as auto loans and credit cards are not tax deductible. However, mortgage interest and home equity lines of credit are tax deductible. While we rarely suggest tapping into one’s home equity, if you are paying substantial interest at higher levels and its not tax deductible, you should consider consolidating the debt into a home equity line of credit where the interest rate would likely be lower and it would be tax deductible.
- Make more than the minimum payment: Making the minimum payment on credit cards can leave you in debt for years as well as significantly increase the amount of interest you pay over the life of the credit. Finding a way to increase your monthly payment each month can significantly reduce the amount of time you are in debt and the interest expenses associated with the debt. However, finding this extra money each month can be challenge. The best way to do this is to analyze your budget and find ways to reduce your spending or use a bonus or salary increase to expedite your path out of debt.
- Create a plan of attack: Create a plan to aggressively attack your debt. Give yourself weekly savings goals and targets and track your progress towards your goals. Make sure that you are paying off the highest interest debt first in order to minimize your interest payments. A plan allows you to hold yourself accountable and ensure your progress towards living a debt free life.
If you need help creating a plan to conquer your debt, please give us a call.
Your Fortis Capital Management Team