6 Things You Didn’t Know About Paying Off Debt
While it may be overwhelming at first, do your research and take it one step at a time. There are many resources out there, such as the best personal finance blogs that can help you get started.While it may be overwhelming at first, do your research and take it one step at a time. There are many resources out there, such as the best personal finance blogs that can help you get started.
Debt can be crippling to your finances and create a sense of weight on your shoulders that never seems to go away. Not only does debt hinder you from saving for your future, but it inhibits you from living with the freedom you deserve.
Think about what you’d be able to accomplish if you didn’t have the obligation of handing over your paycheck to debt payments every month. You’d have the financial freedom to pay yourself first and live your life the way that you want. That could include not living paycheck-to-paycheck, saving for retirement, funding family vacations, working in a job that you love, or just not worrying about how much money is in your bank account.
Now, you may think that paying off debt is as simple as throwing as much cash at your loans as possible, and you’d be partially right. However, there are many other factors to paying off debt that you may not have considered or may not even know about.
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With that in mind, here are six things you didn’t know about paying off debt.
Table of Contents 6 Things You Didn’t Know About Paying Off Debt
1. Paying Off Debt Will Help You Retire EarlyYour income is the most valuable wealth-building tool that you have. When you work on paying off debt, you are enabling your income to be used for a more fulfilling purpose.
You can put your income into savings rather than using it to pay bills. That is highly effective if you want to retire early, and even more so if you start saving sooner rather than later. This gives the power of compound interest the ability to work its magic over time.
When planning for financial independence (FI) and early retirement, you need to calculate your savings rate, FI number, and years to FI. That is an easy thing to do using a FIRE Calculator, but your work doesn’t stop there.
You need to evaluate your current financial standing, make a plan, and follow-through. When it comes to getting control of your finances, the first step to making any progress is paying off debt in most situations. Paying off debt could be the first step towards reaching FIRE.
2. You’ll Create Job FlexibilityHow often do you hear people say, “I hate my job?” Money is typically the driving force when it comes to staying in a job you hate and away from a job you could love. Other times, it stands in the way of pursuing a passion, entrepreneurship, or being a stay-at-home parent.
Paying off debt is a great way to free up money in your budget to create more flexibility when it comes to trading your time for money. That is because you will have fewer monetary obligations to fulfill every month.
Reducing the number of bills you pay every month could allow you the wiggle room needed to make a financially-safe transition. Whether you want jobs where you work alone or not to work at all, taking the pressure of debt off your shoulders can open up many doors for you and your family.
The debt-free life is excellent, isn’t it?
3. Your Credit Score Might Tank or DisappearYou might find yourself panicking and asking, “why did my credit score drop after paying off debt?” It’s supposed to help you, not hurt you. Unfortunately, it might not be the case in the short-term.
The two main factors that could affect your credit score while paying off debt are:
Credit utilization – measures your credit balance versus the number of credit lenders say you can have. It can be affected when you pay off debt from a low balance account, but the rest of your cards are maxed out.Credit mix – refers to the type of debts you carry. In other words, a good credit score would have a variety of debt: mortgage, auto loan, credit cards, among others. When you pay off one type of debt, especially if it was on a set repayment cycle, it can negatively affect your credit.Don’t worry, though, the amount of good you are doing for yourself far outweighs a number that the credit bureaus label you with. It’s very likely that it will crawl back up as time goes on so that you have a good credit score in the long-term
Paying off debt is an essential part of getting your financial life together, so don’t let a decrease in credit score deter you or stop you in your tracks. Keep going! To mitigate any hard-hits to your credit score, continue making on-time payments, and balancing your utilization rate. You can also consider paying off debt with high-interest rates first, like personal loans and credit cards.
If you pay off all your debt, it might even disappear altogether. The challenges of that are for another post, though.
4. More Money Will Appear in Your BudgetSo, you may already know how to budget with debt, but have you thought about budgeting without it? You might be so excited about paying off debt that you haven’t had time to consider the opportunities that await.
The money that you have been earmarking for debt all this time is now able to be allocated elsewhere. While this can be tempting, don’t fall for lifestyle creep! This is not your chance to upgrade your house or car or increase any other spending habits. Use this instead as a prime opportunity to invest in yourself by making smart financial choices.
Here are great examples of what you can do with the extra money that’s burning a hole in your pocket:
Build up an emergency fundStart or increase retirement contributions (IRAs and 401ks are an excellent place to start.)Save for college expenses in a 529Make a sinking fund for a vacation (utilize travel rewards to decrease your costs)Invest in real estate, whether actively or through a company like DiversyFundStart a businessWhen you use money wisely, it will help you to build wealth over time for yourself and your family.
5. Debt Strategies Affect Your Total CostsIf you’ve heard of Dave Ramsey, you’re probably familiar with the debt snowball and debt avalanche methods of paying off debt. While he believes that the debt snowball method is the only way to pay off debt since it increases motivation, I’m here to tell you to think again.
When you’re paying off debt, you need to go about it the right way. That involves thinking about how your debt payoff strategy will affect your total cost of debt. The financially savvy way of paying off debt is the debt avalanche method.
If you don’t already know how to apply this method to your finances, follow these steps:
Write out all your debts (auto loans, student loans, credit card debt, etc.)Place them in order starting with the highest interest rate first until your lowest interest rate debt.Pay the debts off in this order.The idea here is that you will save money on the interest by paying off your highest interest rate debt first and then moving on to the next highest, and so on. You could potentially save thousands by implementing this strategy alone. If you’re just starting your debt payoff journey, you probably didn’t know this.
Dave Ramsey thinks that starting with your smallest debt amount and moving through until you hit your largest debt amount is the right way to go (aka debt snowball method). However, anyone who can do simple math can see that this will cost you big time.
6. Debt Gets Sold for Pennies on the DollarDid you know that some debt is sold for pennies on the dollar?
Allowing debts to be purchased by debt buyers is one way that companies try to recoup the money that they lent you. So, make sure to vet whoever contacts you about existing debts, but don’t be surprised if your debt is now owned by someone else. This is especially relevant to those with credit card debt.
These debt buyers are more privy to high-risk investments, so they buy your debt for a fraction of what you owe. If you pay back a debt of $10,000 that they only paid $1,000 for, they collect an incredibly high return.
While this may seem like an incredibly narrow-minded business, some good has come from it. Companies like RIP Medical Debt accept donations to use for the same purpose. The difference? They buy medical debt for pennies on the dollar, but turn around and forgive it.
Can you imagine the relief that individuals and families feel from that? As of this post, the company has helped eradicate over $1 billion worth of debt!
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Work on Paying Off Debt in 2020As you can see, there are many benefits to paying off debt 一 from something as seemingly inconceivable as financial freedom to something as simple as more money in your bank account. However, it’s essential to consider the other factors that will affect your debt-free journey.
Overall, continue making smart money moves in 2020 by paying off your debt. You’ll thank yourself later as you unlock the ability to shape your own life.
What To Invest In Besides the Stock Market
As you start to save and increase your income, one of the most important steps you can take is investing your money. Many people struggle to know what to invest in besides the stock market. Granted, the choices are vast and can be quite confusing.As you start to save and increase your income, one of the most important steps you can take is investing your money. Many people struggle to know what to invest in besides the stock market. Granted, the choices are vast and can be quite confusing.
However, if you want to ensure a healthy financial future, ensure your family’s finances are secure and live comfortably in your golden years — investing is an absolute must!
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And although there is always some risk with any investing you potentially do, you are risking more by letting your money just sit idly by.
I say this because, you could be missing 20-30+ years of compound interest, which can add up to thousands — if not six-figures of missed investment income. Check out our compound interest calculator to see when you will hit your first million.
Below, we will explore investing in the stock market as well as the investment options you have beyond that.
What to Invest InInvesting in the Stock MarketThe commonplace you should be investing your money is in the stock market. The stock market is where investors all connected to buy and sell investments in stocks or bonds.
Stocks are shares of ownership in a public company, like IBM, GE, etc. You can also invest in various bonds, which represent a loan made by the investor to a borrower (typically corporate or governmental) and receive a fixed income.
Without getting too deep into the stock market, you have options to invest in individual stocks and bonds, ETFs, mutual funds, or index funds.
Of course, I’m simplifying this right now, so if you want a deep dive, I’d recommend reading this about the stock market.
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For most people, investing in the stock market is as far as they will go usually because this is where they’ll have a company 401k for retirement, or even an IRA or Roth IRA (individual retirement accounts). Check out how to be a Roth IRA millionaire.
But if you want to obtain wealth and diversify your investments, you’ll want to invest your money beyond just the stock market.
How to Budget Your Money to Live the Life You Want – Free Template And E-book
Did you know that some of the wealthiest people credit their success in large part to budgeting their money properly? Who would have thought, that a trick so simple as budgeting your money on a regular basis could mean the difference between millionaire and bankruptcy?
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We talk a lot about budgeting and getting out of debt on this site because we know these are the most fundamental things to get started on a good financial foundation.
The fact is, regardless of your current financial situation, you need to budget your money, or your money will take over and drive you in the wrong direction.
Here is the complete guide to how to budget your money, and a list of top tips and tricks from financial professionals that will make or break your financial health.
Before you dig deep, you can check out our philosophy about finance in our post on Dave Ramsey is outdated, try our 12 toddler steps to financial freedom instead.
Budgeting is boring, but it is necessary to reach financial independence. No need to worry, we will walk you through how to budget your money to live the life you want.
Upon researching some of the most reputable money management experts, top blogs on money, and some firsthand personal experience, we’ve put together a guide on getting started with your budget and money management properly. Follow these tips and tricks, and your financial future will be abundant, to say the least.
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Why you need a budget
Before we discuss how to manage your money properly, it’s wise to understand the why behind the what. Here are 10 reasons why you need to keep a budget. Remember these “why’s” and your motivation will always be alive and strong.
This is Exactly how to Do Bargain Buying While Traveling Abroad
That loves a great memento? Who dislikes spending an arm and a leg on buying stated memento? Deal buying while abroad can be among the most fun and pleasing things you do during your journeys. Why? Due to the fact that even though, when you do all the financial conversions, you're not paying that much in bucks, you wish to obtain a reasonable cost for where you are.
I can't inform you the number of times that I've gone shopping in India as well as come home with what I assume is a large amount (i.e. I invest 11 dollars on a hand-carved rock elephant) and my aunties and also relatives are right away like "you paid too much!"
The problem with being an immigrant is that you're a target for rip-offs as well as cheats. While at the end of the day it might not amount to a lot of cash for you in your own currency, you do not want to continue taking a trip with unjust bargains. This is especially real on long trips as your cash will certainly go out incredibly quickly. Plus, the whole point of shopping abroad is to get genuine things, locally made and also sourced, that the citizens themselves get. In this instance, you need to likewise pay the like the citizens and obtain the exact same deals.
When I speak of "negotiating" I mean "bargaining". This indicates that you don't have to, neither need to you, pay the cost you are offered. Not all areas allow for this, however, for those that do, it is necessary to understand just how to haggle with store proprietors. There are strategies and also knowledge to doing it correctly and also obtaining the very best offers possible, which is what this blog post is everything about.
If you're in a location that allows for bargain purchasing, you can price bargain for any type of product being offered there. This includes food, clothes, devices, and decorations. The exception to this is food things being cost food stalls for you to consume; other food delays marketing seasonings or packaged goods, you can attempt your hand at negotiating. Store proprietors may reject you, so in those circumstances, you won't have the ability to bargain, yet it never ever harms to attempt!
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I wish to share some general "rules of thumb" when you go deal buying in international countries. Obviously, if you love a thing as well as can afford it in your very own currency, and also are willing to pay, after that go for it. Bargaining for a far better rate, in that instance, is less of a problem as your focus will certainly be on obtaining what you want. I don't assume there's a substitute for something you like or can see yourself in fact using. But for all those various other items that you want, that looks cool, or small things that you are attempting to purchase for the function of gift-giving, you should negotiate.
Stop Begging for Money & Take Ownership Of Your Finances
stop-begging-for-money become the new norm? It seems that the internet has become an easy way for people to become online panhandlers. I’ve shared many ways to make extra money from home, online, and even creative side hustle ideas (ie “Dave jobs” for all of you Dave Ramsey fans).stop-begging-for-money become the new norm? It seems that the internet has become an easy way for people to become online panhandlers. I’ve shared many ways to make extra money from home, online, and even creative side hustle ideas (ie “Dave jobs” for all of you Dave Ramsey fans).
From CyberBeg to BeggingMoney, there’s no shortage of sites available to ask strangers for financial help.
But at some point, you have to get your financial shit together and take responsibility for your own successes and failures.
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Here are four ways to get it done.
Table of Contents Step 1: Evaluate your IncomeDo you make enough money to support yourself, your partner, and/or your kids? According to the US Census Bureau, median household income was $61,372 in 2017. Income is calculated including wages and salaries, as well as any kind of governmental entitlement such as unemployment insurance, disability payments or child support payments received, along with any personal business, investment, or other recurring sources of income for all persons over the age of 15 in the household (whether related or not).
If you aren’t currently earning enough money, find ways to make extra cash, such as starting an online business or donating blood plasma for up to $400 per month. There are so many ways to bring in extra money that there are literally no excuses worthy of holding you back. You just have to make the decision to hustle. Work nights and weekends if you have to. Work two jobs if you need to. Go back to school if it will improve your financial situation.
Step 2: Start Budgeting Every Single Time You Get PaidMany times, financial problems are the result of overspending and improper budgeting (or worse, failing to budget at all). Budgeting is so important, especially if you are an impulse buyer. You don’t need fancy planners or complicated spreadsheets to create a budget. I use this cheap family and finance bill organizer from Dollar General (and have used it for years) to keep track of my budget.
Best Budgeting AppsIf budgeting with a pencil and paper isn’t your jam, using apps or spreadsheets can be a great way to track spending. The Balance put together a list of the best budgeting apps available to help you track your income and expenses.
Here they are:
Best Overall: MintBest to Keep from Overspending: PocketGuardBest for Type-A Personalities: You Need a BudgetBest for Just Budgeting: WallyBest for Cash Style Budgeting: MvelopesBest for Couples: GoodbudgetBest App Tied to a Bank Account: SimpleBest for Investors: Personal CapitalBy creating a written plan for your money every single time you are paid, you’ll be able to set realistic financial goals as well as expectations for your spending.
Step 3: Find Ways to Cut CostsThere are certain things we’ve become accustomed to, such as TV, internet, cell phones, alcohol, cigarettes, [insert your vice here].
Many people fall into the trap of contracts with DirecTV and AT&T and end up spending so much more than they should. These services are a luxury. If you are begging for money, you don’t have money for a TV plan. It’s time to cut the cord and downgrade your cell phone to a service like Cricket Wireless.
Also obvious but seemingly impossible is to quit smoking, drinking, and buying things like energy drinks, fountain sodas, and specialty coffee when you simply can’t afford it.
Let’s say you have $5 to your name. $5 to get you through the next 3 days until payday. You could buy your favorite Starbucks drink OR you could buy a loaf of bread and sandwich meat OR you could buy a whole rotisserie chicken from Walmart. It’s a no-brainer!
Step 4: Determine if Daycare is Worth the CostIf you and your spouse are both working outside of the home, it’s important to make sure it makes financial sense. Take a look at your take-home pay (assuming you are not the breadwinner). Let’s say you take home $1500 per month after taxes and insurance. Sounds pretty decent as an extra source of income for bills, right?
But your childcare costs are $1300 per month for your two small kids and your older child’s after-school care. The time you’re spending away from your family probably isn’t worth $200 per month net, am I right?
When I left my banking career, this was my situation. After expenses, I was taking home around $500 per month. Hardly worth it.
All this being said, you also need to take a close look inside and determine if you want to be at home with the kids all day. I’ve said this before, but it bears repeating. I am a better mom for my kids when I get a break. When they are in school and I’m able to work on my blog or YouTube channel, clean house, or run errands, I love it.
Then when it’s time for them to come home, I focus on the kids and I love it! You have to find a balance if you decide to quit your job to stay at home with the kids.
Side Note: If you’re worried about healthcare costs, check out how Christian Healthcare Ministries paid nearly all of our $60,000 in medical bills and our premiums were only $135 per month!
Stop Begging for Money & Take Ownership Of Your Finances
How to Stop a Friend or Family Member from Begging for MoneyStop enabling them. Stop giving them $5 here, $10 there, putting gas in their tank, buying them groceries. Parents: your adult children are adults. A little tough love will help them far more than a few bucks. Offer to proofread their resume or help them look for jobs. But stop giving them money.
You’re putting a band-aid on a problem that is far deeper than “How am I going to eat this week.”
Bottom Line: Stop Begging for Money & Take OwnershipBegging for money isn’t attractive on anyone. You are worth more than this. When you have conversations with your friends and family, it should be great to talk about how amazing things are going for you. It would be amazing for you to ask them about their family without constantly talking about yourself and your financial problems.
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It’s okay to seek advice and help. It’s not okay to have a pity party over and over and over again.
To recap:
Evaluate Income – Get, and keep a J-O-B.Make a BudgetFind Ways to Cut CostsDitch Daycare (if possible)
How To Get Your Life Together {Financially}
I understand that the need to budget isn’t a groundbreaking discovery. Personal finance bloggers have beaten the subject to death. A budget, even if it’s just a crude listing of all your expenses and income on a piece of scrap paper, is essential to get your finances in order.
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You do not need to use a fancy software program or excel budget template, although they do help. Grab a notebook or some paper, gather up all your monthly bills, and write down how much you spend each month.
Don’t cheat yourself, guess, or play games with rounding and estimates. Most people find that when they write out a realistic budget, they are surprised where some of their money is going.
A colleague of mine in financial planning once did a budget with a married couple who couldn’t manage to save enough money despite having excellent salaries. Once they did a budget to see where all the money was really going, the wife found out the husband was keeping a woman on the side. So, you never know what a budget might uncover.
Read more in our epic article on how to budget your money to live the life you want. In the article, we dived deep into everything budgeting. We also give out a free budget template we use personally.
If you feel you need help putting together a budget for whatever reason, we highly recommend Facet Wealth. Facet is a financial planning firm whose advisors are all Certified Financial Planners (CFPs). Facet Wealth charges a monthly fee. Your fee depends on the complexity of the work they do for you. You will receive a price quote after an initial consultation with your CFP.
Their CFP’s are all salary based, meaning they don’t earn a commission or fee for selling products. They offer a free initial phone call, and the costs, if you choose to hire them, are incredibly reasonable, with fees as low as $40 monthly.
PocketSmith is a personal finance software solution that can let you track all of your accounts, such as checking, credit cards, student loans, and investing accounts, and forecast your financial future at a glance.
BillShark negotiates lower prices on your monthly bills to save you time, money, and hassle.
Facet wealth is a subscription-based financial planning firm that can help you with all aspects of getting your financial life organized for a reasonable monthly fee.
Once you have a sense of where your money is going, its time to look for ways to save money. Now, I’m not going to ask you to give up the fun stuff, at least not at first. Instead, I want you to focus on the items you might be overpaying for that don’t bring you any joy.
Most households waste money without even realizing it. According to Nerdwallet, “More than one in three Americans haven’t compared costs or checked the price of their [auto] policy in at least three years.”
The average family could save 400 dollars a year by comparison shopping, just their auto insurance policies.
However, it doesn’t stop there; the average family needlessly spends over 100 dollars on cable. If you have high-speed internet, you can save 50 dollars a month or more going with a live TV streaming service.
When I was working with individuals with modest incomes saving for retirement, we often found that they were overpaying for homeowners’ insurance, life insurance, auto insurance, taxes, utilities, and phone/cable/internet. By comparison shopping these services, the average family can save an additional thousand dollars or more per year.
