Paying down debt without rules or guidelines can make it easy for us to get off track. Most of us were taught basic financial rules when we were young, like how to save for a rainy day or how to budget our money. However, things are a little different when you have a debt to pay down. Some of us aren’t sure where to start when we see the amount of debt we owe. This article will outline some financial rules and tips that can help young professionals like yourself stay on track with your money.
8 simple Rules/tips we can follow while Paying Off Debt
1. Get help from a professional when your plan isn’t working.
This can be considered a tip, but I believe this should be a rule if you’ve created a plan but are still struggling to get out of debt. For years, especially in the black community, getting help with our finances have been looked down on and in most cases considered embarrassing. There is no shame in seeking help from a professional. A credit counselor or financial advisor can help us create a plan to get out of debt and make sure we’re on track. In some cases, getting help from a professional can make a big difference in how quickly we’re able to pay off our debt.
2. Pay off your debt as soon as possible.
When we develop the mindset to “deal with an issue later” it can grow to a bigger problem later. Debt is not something we want to continue to push to the side. Paying off debt as soon as possible is important for several reasons. First, the sooner you pay off your debt, the less interest you will have to pay. Second, paying off debt can free up money each month that can be used for other purposes, such as savings or investing. Finally, paying off debt can help improve your credit score and create opportunities for you and your family.
3. Make a budget and stick to it.
When we are paying down debt it is important to be mindful of our spending. Making a budget and sticking to it is a very important rule to follow when paying down debt. A budget can help you see where your money is going and adjust spending so that you can free up more money to put towards paying off debt. Is sticking to a budget easy? No, it’s not, but when you think about the long-term effects of debt being paid down, it trumps the mindset of throwing in the towel in the short term. Two tips to help you stay on track with your budget are, 1) make sure your budget is realistic and 2) track your progress. If your budget is too restrictive, you’re likely to give up on it quickly. Also, seeing how much debt you’ve paid off can be a great motivator to keep going.
4. Pay more than the minimum payment.
If you only make the minimum payment on your debt, you will end up paying more in interest over time. Here’s a few key reasons why you should always aim to pay more than the minimum payment on your debts. First, paying more than the minimum payment will pay off your debt much faster. A large part of the minimum payment can be interest which is only a small percentage of what you owe, so it can take a long time to pay off your debt if you only make the minimum payments.
Paying more than the minimum will help you get out of debt quicker. Second, the longer it takes you to pay off your debt, the more interest you will accrue. This will end up costing you more in the long run. Paying down your debt quickly will help minimize the amount of interest you pay. Finally let’s not forget that carrying a balance over time can affect our credit score. Making more than the minimum payment will help improve your credit score. Your credit score is partially determined by how quickly you pay off your debts. By paying more than the minimum each month, you can help improve your credit score over time.
5. Pay off high-interest debt first.
If you have multiple debts with different interest rates, it may make sense to focus on paying off the one with the highest interest rate first. This will save you money in the long run as you will be paying less in interest overall. Paying off high-interest debt can be difficult, but it’s important to remember that every dollar you save in interest payments is one step closer to becoming debt-free.
Here are a few tips to help you pay off your high-interest debt:
- Pay more than the minimum payment each month.
- Consider a balance transfer credit card.
- Use the debt avalanche method
6. Use any extra money to pay off debt.
If you come into some extra money, such as a bonus from work or a tax refund, consider using it to pay down your debt. Paying off debt early can save you money in interest and help you become debt-free sooner. Another idea is to use the money to “buy income” which will create another stream of income to help pay down your debt. For example, you could use the tax refund money to learn how to create a blog, create a shopify store, flip pallets, or even invest in a vending machine. These different investments can help to generate income to help you pay down your debt. The best thing about this is you can create passive income and continue to do so after the debt is paid off. Check out my other blogs about ways to make extra money.
7. Negotiate with your creditors if you’re struggling to pay off your debt
If you are struggling to make your payments, reach out to your creditors and see if they are willing to negotiate a lower interest rate or monthly payment amount. Many times, they are willing to work with you if it means that they will get their money back. If the creditor decides to not lower your interest rate remember you can speak with a professional that can negotiate lower payments for you.
8. Remember your Long term goal and be patient
Paying off debt can be a long and difficult process, but it is important to be patient and stick with it. The need for short term gratification can get to us sometimes. We want to be able to enjoy our lives and not feel bogged down by a budget even though it’s helping us to pay down debt. You may be feeling that way now, but 5-10 years from now how would you feel knowing that you and your family don’t have to deal with being buried in debt? You will be glad you made the sacrifices when you are debt-free. Remember your long-term goal and be patient.
What are some financial rules to help us manage debt and budget?
What is the 20/10 Finance rule?
The 20/10 rule says that our consumer debt payments should take up, at a maximum, 20% of your annual take-home income and 10% of your monthly take-home income. This rule can help us figure out if we are spending too much on debt payments and it limits the additional borrowing that we may be considering taking on. Two things to note is that student loan debt will make this rule very difficult to follow. Also, mortgage debt is excluded from the 20/10 rule calculation.
What is the 70/20/ 10 rule?
The 70/20/10 budgeting rule is a guideline that suggests how you should allocate your income. The rule goes as follows: 70% of your income should go towards living expenses, 20% should go towards savings and investments, and 10% should go towards debt repayment and tithe. This budgeting rule is a helpful way to ensure that you are living within your means and making smart financial decisions with your money.
What is the 50/30/20 rule?
The 50-20-30 rule is a money management technique that divides your paycheck into three categories: 50% for the essentials, 20% for savings and 30% for everything else. The 50/30/20 rule can be a helpful tool if you’re trying to get a handle on your finances. It can help you to allocate your income in a way that allows you to cover your basic needs while still having some room for savings and discretionary spending.
What is the 20/4/10 rule?
The 20/4/10 budgeting rule is a simple way to help you control your spending and keep your finances in order. It works by dividing your income into three categories: essential expenses, flexible expenses, and savings. You then allocate 20% of your income to essential expenses, 4% to flexible expenses, and 10% to savings. This rule can help you stay on track with your finances and make sure that you are saving money each month.
What is the 60/30/10 rule?
The 60/30/10 budgeting rule is a simple and effective way to help you manage your finances. It breaks down our spending into three categories: 60% for essentials like housing, food, and transportation, 30% for discretionary items like entertainment and eating out and 10% for savings and debt repayment. This budgeting method can help you stay on track with your spending and ensure that you’re putting enough money aside for your financial goals.
What is the 80/20 budget rule?
The 80/20 budget rule is a guideline that suggests that you should spend 80% of your income on essential expenses and save 20% for future goals. This rule can help you create a balanced budget and reach your financial goals. Essential expenses are those that are necessary for you to live, such as housing, food, transportation, and healthcare. This category also includes debt payments, such as your mortgage or car loan. Saving 20% of your income for future goals may seem like a lot, but it can help you reach financial milestones, such as buying a home or saving for retirement.
What is the 40/30/10/10/10 rule?
The 40/30/10/10/10 budget rule is a guideline that suggests that 40% of your income should go towards essential expenses, 30% towards discretionary spending, and 10% each towards savings, tithe, and debt repayment. This rule can help you to create a balanced budget and reach your financial goals. Discretionary spending includes items such as entertainment, dining out, and travel. This category can vary depending on your lifestyle and preferences. Savings can include items such as an emergency fund, retirement savings, or investments. Debt repayment can include items such as credit card debt, student loans, or a mortgage.
What is the Rule of 72?
The Rule of 72 is a way to determine how long an investment will take to double when given a fixed annual rate of interest. By dividing 72 by the annual rate of return, an investor can get a rough estimate of how many years it will take for the initial investment to duplicate itself.
Conclusion:
So, there you have it, 8 simple Rules/tips we can follow while paying off debt and some financial rules to help us manage debt and budget. We hope these rules and tips will help you on your journey to becoming debt free. Please feel free to share any other rules or tips that have worked well for you in the past. And if you’re looking for more information on how to get started on your own debt free journey, be sure to check out our website. Thanks for reading! Don’t forget to check out my other blogs about paying off debt!
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