Happy New Year from all of us at Bank First! Last month we took a poll asking for your 2021 financial goals and today we will address one of the popular responses... reducing debt. Substantial amounts of debt can weigh heavy on your mind and be so overwhelming that you do not even know where to begin paying it down. We hope to share a few key takeaways which may help you reduce your debt this year.
- Evaluate your current spending. Review your credit card statements, bank statements and cash purchases. Determining exactly where your money is going can go a long way in helping you set a budget, enabling you to tackle debt.
- Start a payment plan. Consider using either the snowball or the avalanche debt reduction method. In both approaches, you would pay the minimum balance due on all debt, but the target of extra funds is different. In the snowball method, you choose to pay off your debt in order of smallest balance to largest. When the smallest debt is paid in full, you roll those funds into the next smallest balance and continue the process until your debt is paid. In the avalanche method, you choose to pay off the debt with the highest interest rate first. Any extra funds would go towards debt with the high interest rate. Once it is paid, focus on the debt with next highest rate.
- Avoid adding to your current debt. This includes using your credit card for impulse buys and cutting unnecessary spending. Credit cards can be a great tool when used correctly, but can also be a hindrance when paying off debt.
- Save for emergencies. It may sound illogical to save money when you want to designate as much as you can to pay down debt. However, saving for life’s unexpected emergencies can create an additional resource so you do not reach for a credit card, resulting in more debt.
- Utilize extra income. Make additional payments using any funds you receive from a bonus, pay increase, or money back from the IRS at tax time. Depending on your personal circumstances, you could also consider a secondary source of income.
Most importantly, we encourage you to find a process that works best for you. Be consistent, don’t give up and be sure to track your progress so you can celebrate your wins!
If you need assistance utilizing any of our products or services that could help you along your journey to reduce debt, please don’t hesitate to reach out to a banker at your local Bank First office.