Just because you can borrow money doesn’t mean you should.
“That’s not what our consumption-oriented society wants to hear,” says JJ Montanaro, a CERTIFIED FINANCIAL PLANNER™ at USAA. To make matters worse, a growing number of households are getting deeper into debt.
However, with the right plan, it’s possible to become financially fit and ready to meet life’s challenges. These five tips may help you lower your reliance on credit and put you on a path toward financial freedom.
- Make a plan — and stick to it. Make a budget, and don’t spend money unless it’s in the budget. Also, consider using USAA’s free Debt Manager tool to get a personalized debt payment plan. The tool can help you assess your debt levels and set goals.
- Know what you owe. Review all your statements and highlight current balances, interest rates and minimum payments due. Decide on a plan of attack by focusing on the highest interest rate debts first. Communicate with creditors if you are past due or are close to being past due on any bills.
- Establish an emergency fund. If you’re working hard to get out of debt, you don’t want to let something beyond your control mess it up. Start by setting a goal to save $1,000 before starting to pay off debt. Your ultimate goal should be to have three to six months’ worth of living expenses available in savings in case of an emergency.
- Find extra cash. Until your debt is paid down, consider what services you can cancel or items you can sell. A penny earned can be a penny that fights debt. Put any extra cash toward your shrinking credit card bills or loans.
- Lower your rates. Money saved by reducing your interest rates can add up quickly. Sometimes, all it takes is a phone call to your lender to lower the interest rate on your credit cards. And here’s the bonus: Using the money you’re saving in interest to aggressively pay down your bills can help you eliminate debt even faster.