Update: 01/17/2023
Credit card balance, car payments, students loan, you name it, I have had it all. When I first reported on this in 2019, NerdWallet reported that the average U.S. household with credit card debt has an estimated $6,929 in revolving balances, or balances carried from one month to the next. With the current 6.5% annual inflation (data ends in Dec 2022) , an average American who only make $4,511 monthly would have a very difficult time to pay off their debt. Debts can be overwhelming sometimes, but they are manageable if you have a plan in place.
Today, I will share with you five useful tips that I use to pay off my debt. These methods might not apply to you but let’s give it a try.
1) Create a budget.
A budget can be simple and doesn’t have to be complicated. First, you have to figure out where your money goes. For example, every month, your rent is $800, gas is $120, phone is $90, and groceries is $100 …
The more accurate the values are, the better.
If your average monthly income is $2,000 and you have to spend a total of $1,110, there is $900 left for you to save or pay off your debt.
If you don’t know how to create a budget, these are the best 5 expense tracker in 2023 and all you have to do is to sign up.
a. Mint: I have used this before and it is very easy to used. The best part is it is Free
b. GoodBudget
d. QuickBook
e. Expensify
Some a free and the others are not. It depends on your references so pick them out for yourself.
2) Pay off your BAD debt first.
Don’t know where to put your extra cash? If you have multiples financial troubles line up, there are 3 steps you should do to help you decide.
First step is to understand what kind of debt you are dealing with. Bad debt is usually in the form of credit card debt or a personal bank loan. You should tackle bad debt first.
Second step is to figure out what give you the biggest boost. 3,000 credit card bill with an 18% interest rate is far worst than $600 bill at 6% interest rate.
The last step is to think about credit score. If you are planning to build up your credit to purchase a house or a car later, it might be worth it to tackle credit card debt.
3) Pay more than the medium balance.
If you are successfully tracking your expenses, budget on the daily and save a lot more money, you definitely should put it down more towards your debt. You need to step it up a notch by setting up a timeline to pay off debts. Forget the slow-debt-payoff strategy, step up your game and make a commitment to pay it off within weeks.
If you don’t know what is the best tools to track your expenses, “How to Track Your expenses” includes all the tools I personally use to track my spending. Check it out because it works for me.
4) Burn your credit cards
How much credit card debt is bad? ALL OF IT. According to Consumer Credit, the goal is to not spend more than 10% of what you make monthly on credit card. “It’s bad to find yourself in a situation where what you are required to pay per month for your credit cards is in excess of 10% of your average monthly income, e.g. having a minimum of $400 when you make $4,000 on average a month.” ConsumerCredit.com
Yes I said it:
Just get rid of all your credit card and you won’t have that problem again.
But Quan, what do I use instead?
“CASH, CASHH, CASHHHHHH, …………”
Trust me this method works so far for me and my wife. Here is how I do it. After I get paid on Friday, I withdraw $500 on that weekend for us to spend the next 2 weeks. The goal is simple:
- Use Cash for everything except Groceries and Gas
- if you absolutely have to use credit card such as Amazon, go ahead but keep track
- The Budget is $500. DO NOT GO OVER
I also want to share TIPS TO PAY OFF CREDIT CARDS FAST.
5) Put your work bonus or Tax Credit towards your debt.
Try to avoid that temptation of spending that extra cash on the vacation or a new handbag. It is tough, but you need to stay focus on your goal. Remember, the more money you put towards debts, the faster it will get paid off. Vacation destinations still there. The handbag will be out of style and depreciate in values.
Your turn
Do you have any debt paid-off story you would like to share? Comment below because I want to learn form you, my wonderful readers.
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