January 23, 2023
What would you do if you didn’t have a single monthly payment each month on debt? No car, credit card bills, student loans, or even a house payment! Living a debt-free life with no monthly payments is possible for everyone, regardless of income. Eliminating your debt and managing your spending habits can be life-changing and could enhance your mental health, financial independence, and net worth.
However, if you have debt you carry month over month, the cold hard facts are:
Not all debt is bad. For example, a student loan, car loan, or mortgage is necessary to advance your future earnings, provide transportation, or provide a safe living structure. But if you finance more than you need, such as a luxury car that significantly impacts your budget and monthly payments, debt can be harmful depending on your situation.
If you would like to eliminate your debt, here are some methods that may help you as you work toward a debt-free life:
Debt Snowball method- This debt reduction strategy has you pay off your debts by starting with the smallest to the largest regardless of the interest rate. This strategy also helps change spending habits because you focus all your additional money toward debt reduction. You’ll make minimum payments on the rest as you work toward snowballing the smallest debt. Start by paying off one debt first, then move to the next lowest balance debt. Here’s how the Debt Snowball method works:
Debt Avalanche Method- This debt reduction strategy involves making the minimum payment on all your debt and then using any remaining money earmarked for your obligations to pay the bill with the highest interest rate. Using the debt avalanche method will save you the most in interest payments. Here’s how the Debt Avalanche method works:
The Debt Avalanche method will make your money go the furthest and save you more on interest charges. However, this method may take more time to eliminate all debt, depending on your situation.
No matter which debt elimination method you choose, making more than the minimum payment on the balance you are working toward paying off is essential. Otherwise, you will continue to accumulate interest charges. Now that you know the cold hard facts about debt and how to eliminate it, choose the appropriate method for your situation or consider discussing these options with a financial professional to help you determine a suitable course of action.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by Fresh Finance.
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