Personal Finance - Arla Wallace
|Arla Wallace is an accounting professional with over 20 years experience. She spent several years working for both publicly-traded and private entities before founding her own business. Today she partners with small business owners so they can focus on operations while leaving the responsibility of staying on top of accounting tasks to her. She is a Certified Public Accountant (CPA) and a Certified ProAdvisor for Quickbooks Online.|
Paying Off Debt
According to the Federal Reserve, American household debt reached $14.6 trillion in early 2021. While debt is used to meet life goals such as owning a home, financing a car, or paying for college, getting out of debt can prove challenging. Whether the goal is to decrease debt or become debt free, below are steps that can help you access and take control of your current debt situation.
While there are a lot of factors that can affect the amount of debt that an individual incurs, statistics alone cannot determine the impact on that individual. Rather, life events, poor money management, social acceptance, and the media all play a role in debt decisions. As such, the key to financial freedom starts with taking ownership of your debts. Start by scheduling all loans (including personal and student loans), credit cards, and mortgages in a single document. Pay attention to the balance due, as well as the interest rate associated with each debt obligation.
Create a Plan
Establish and stick to a budget to help control spending while you pay off your debt. Depending on the amount of debt owed, it may be possible to do it yourself. Using a free debt-repayment app like Tally, can help you visually track and map repayment with a payoff calculator. Consider enlisting either the “avalanche” approach—paying off loans or credit cards with the highest interest rates first—or the “snowball” approach—paying down the lowest debt amount first until paid off, and then moving to the next lowest debt obligation. If possible, try to pay more than the minimum amount due on credit cards and mortgages.
Debt consolidation can help you reduce multiple debts with different interest rates into one single payment with a lower interest rate. Balance-transfer credit card options are available for those who qualify and come with lower introductory interest rates. This option is best for debt that can be paid back within 12-18 months. A debt consolidation loan is another option that allows you to pay off your debt and then pay back the loan in installments over a set term with a fixed interest rate. Consolidation loans are available to individuals with bad and fair credit, but higher credit scores will help you get the lowest interest rates.
For those individuals overwhelmed with debt and little hope on how to pay it back, the National Foundation for Credit Counseling offers free debt management help. This non-profit agency can help individuals lower interest rates, stop creditor calls, improve credit health, and provide financial education for success in the long-term.
Change Your Habits
Taking control of personal debt requires a change in habits. To control overspending, it may be necessary to remove credit cards from your wallet completely. In the event you are unable to keep up with essential spending (utilities and housing), it may be necessary to get a smaller house or take on a second job. Side hustles may prove helpful to provide the cash needed to help decrease your debt obligation. Another way to get extra cash is to sell household items that are no longer needed. Adoption of good spending habits now will not only help you lower or erase your debt, but will also help you avoid returning to debt in the future.