Excessive debt, whether accumulated through credit card bills, student loans or medical expenses, is a chain that limits your freedom and weighs you down. It keeps you from accomplishing your financial goals and prevents you from building wealth. If you’re trying to break free from high debt, Origin Bank can help.
Regardless of how much debt you carry, paying it off starts with a plan. Origin suggests a few tips in taking those first steps.
- Figure out both sides of the equation. Sit down and determine how much you owe and how much you make. You’ll need this when developing a budget. Generally, experts recommend setting aside 20 percent of your income for savings and debt payment. With high debt, you’ll probably need to set aside more. Remember, Origin’s Personal Financial Management Tool tracks your spending automatically, and it’s built right into our mobile app.
- Help is out there. Credit counseling agencies can be a great source of advice when developing a repayment plan. They also work with creditors in renegotiating interest rates, fees and amounts. The National Foundation for Credit Counseling is the country’s largest nonprofit financial counseling organization. Check out its online search tool to find a local affiliate.
- This may take a while. Depending on how much debt you have, repayment plans typically take three to five years to complete. While that may seem like a long time, there is peace of mind in putting your plan into action and watching your debt decrease. There are ways to speed up the process of debt repayment, like this one:
- Extra payments add up. The longer you carry debt, the more you pay in interest. But the reverse is also true. The faster you pay off your bills, the less you spend on interest. Making even one or two extra payments a year can substantially lower the amount you spend and the amount of time it takes to pay off debt. Extra payments also improve your credit score.
- Debt consolidation might – or might not – be best. A debt consolidation loan definitely makes things easier, since there’s one monthly payment. But the key is the loan interest rate, which is tied to your credit score. If the loan rate is too high, a consolidation loan doesn’t make sense. If you’re interested in this option, many experts recommend applying for only one loan at a time to protect your credit score.
- Have a goal. Buying a home. Starting your own business. Financial investing. Going on a vacation. Experts say that having a clear and realistic financial goal keeps you motivated to pay off debt. You have a much better chance at success when a reachable objective is on the other side.
One last thing: There’s nothing necessarily wrong with using a credit card. In fact, having one is essential in certain cases. Paying off your bill on time and staying within your budget shows responsibility and helps your credit score.
If you want to know more about paying off debt, or how to avoid it in the first place, reach out to us here at Origin. We’re here to help.