Getting Out of Debt the Easy Way
Debt sometimes seems so pervasive as to be part of the American way of life. In fact, the typical U.S. household is indebted to the tune of almost 16,000 dollars. Becoming debt free is the first step towards achieving financial security. Along with paying off debt, accumulating savings is essential for building wealth. What should you do first: pay off debt or save? The truth is, you should likely do both at the same time. From cutting coupons to saving on your insurance plans from a Cleveland insurance agent, here are some ways to simultaneously save while paying down debt.
Taking a hard look at your finances
When you think of job security, do you picture a scene from the 1950s? There’s a reason for that. Long-term job security is not something any American can count on these days, unfortunately. However, the relative security of your job is essential in restoring financial health. If you can reasonably expect to have the same job for at least several years, you don’t have to sock as much money away in an emergency savings fund (though it is still a good idea to squirrel away at least 3 months of expenses for unexpected needs). If your job situation is more precarious, however, try to amass at least six months of savings so you can weather any potential bouts of unemployment.
Do you anticipate any large expenses in the short term?
Credit card debt should be your top priority because of high interest rates attached to this kind of debt. However, you also need to have enough liquid cash to pay for any unanticipated emergencies. Even as you are paying off your debt, it’s wise to also set aside a decent amount of cash in your savings account. This way, you don’t pay off debt only to see yourself racking up more credit card obligations due to unanticipated emergencies.
Don’t skimp on insurance
When you’re trying to save money, you can be tempted to cut corners on things such as insurance policies. This is not always advisable. Paying only for minimum coverage may sound like a wise cost-saving strategy; that is, until an emergency strikes and you’re stuck with a hefty bill that would have otherwise been covered by insurance. Your best bet is to contact an insurance agency or Cleveland insurance agent to see how you can maintain generous coverage while cutting costs.
Should you “snowball” your debt?
Sometimes you may feel like paying off your debt is hopeless; we all can fall into a slump like this, and the best way out is often psychological encouragement. A practice known as snowballing can give you the mental boost you need to keep going with your debt reduction plan. This approach allows you to minimize the amount of interest you pay by going above and beyond the minimum payment each month. However, even as you snowball your debt, make sure you keep at least a little bit of your monthly income tucked away in a savings account.
Saving while paying off debt
It is not advisable to completely forgo saving while you get rid of your credit card debt. Taking into account factors such as job security and amount of debt, you should calculate a solid savings plan while also paying down your credit cards. Contact a financial advisor or Cleveland insurance agent for additional savings strategies.