Do you have debt that you can’t stand and are ready to pay off like yesterday?
The most common forms of debt that tend to hold us hostage in our financial life are credit card debt, student loan debt, auto loan debt, mortgage debt and personal loan debt.
Is debt ruining your life or do you have it under control? Are you somewhere in the middle?Are you taking on more debt to pay off or pay down existing debt? Do you have more debt than income to pay it down comfortably?
A good debt reduction strategy is the answer to our current debt woes, along with supplemental strategies on how not to get back into debt. Do you have a good strategy for how you intend to reduce your debt?
Here are 3 debt reduction strategies that I share with my community of money masters and wealth builders (join us for more of this good stuff!) and also, subscribe to when working with my clients.
1. Start with the debt that has the highest interest rate. By doing this, you eliminate the debt that is costing you the most based on the interest rate. However, be very clear, that just because a debt has the highest interest rate, doesn’t always mean it’s costing you more than another debt with a lower interest rate. If the higher interest debt has a lower balance than a lower interest debt with a higher balance, the lower interest debt could be costing you more. Simple math will help you determine the exact numbers. For example, if I have a debt with interest of 10% and a balance of $100, the debt costs me $10. On the other hand, if I have a debt with interest of 6.75% and a balance of $500, it costs me $33.75. Get my drift?
2. Start with the debt that has the highest balance. This strategy allows you to reduce your interest cost and balance at the same time. By reducing the balance, you’re obviously reducing what you owe. However, you’re also reducing the interest cost because the interest is being applied to a lower balance. For example, a debt with interest of 10% and a $100 balance costs $10. However, if you reduce the balance to $90 by making a $20 payment ($10 goes to the interest and $10 to the balance), the interest costs $9 now. Understand?
3. Start with the debt that stresses or worries you the most. I strongly believe that you have to be in tune with your financial situation. So much so that it makes you feel a way, in good time and bad. However, I am not suggesting that you should stress and worry. I am suggesting that you’re aware of the role your money plays on your emotional and physical health. We all know money can cause stress. So, if there is a debt that totally stresses you out and keeps you up at night, then that is where you should start. It could be a debt that you owe to a relative or friend or a even, a medical debt. Typically, these types of debt don’t carry interest, so one may question why you’d want to start with this type of debt. However, I believe it’s important to start where it makes the most sense. Screw status quo. If this debt is most troublesome, start here. You feel what I am saying?
Since you know your situation better than anyone else, which of these strategies resonates the most with you? Are you currently implementing one of these strategies, or not implementing a strategy at all? Position yourself to learn more about how you can get your debt under control, feel less stress and move towards money mastery. Join our community of money masters and wealth builders. I’d love to have you!