Debt can be a crushing burden to carry and many Americans on average have a whopping $92,727 of debt from things like credit cards, car loans, student loans, and personal loans. Knowing a good strategy for getting rid of your debt can keep you on track and push you toward a better financial future. There are two main methods for paying off debt: the debt snowball and the debt avalanche. While these terms may seem silly, they have effectively helped thousands of people dig themselves out of extreme debt. Let’s look at each method.
Debt Snowball The debt snowball takes the approach of aggressively paying of your smallest debt first (while still paying minimums on your other debts) and then rolling that money you freed up from paying off the first debt into the next. This method works for a lot of people because it’s easier to see and feel progress when you can remove the small stuff quickly and easily. Debt Avalanche The debt avalanche method focuses on paying off the debt with the largest interest rates first (while still paying minimums on your other debts). These debts are often the bigger lump sums of money you owe from things like car loans or student loans. This approach potentially will help you save more money and pay off debts quicker. Which method you choose will depend on you and your mindset. The biggest deciding factor will be the one keeps you on track and motivated to continue because paying off debt takes time, sacrifice, and discipline.
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I know, I know. No one wants to hear the word budget. Maybe you think it’s too much of a hassle or it means cutting out all of your favorite things. But budgets are personal to you and your situation. They can not only help you stop overspending and dampen the constant anxiety from worrying about money, but it can help you get your priorities straight and spend your money on the things you want. It can be one of best tools in your belt to take back control of your finances.
Spending habits With how easy it is to pay for things, even when you don’t have the cash in your account, it’s hard not to buy something and think to yourself that you’ll worry about the cost later. Only later never comes because facing that debt can be overwhelming. But if you take the time to look at what you routinely spend money on, you can decide what is worth the cost and what you can do with less of. This enlightenment, while sometimes daunting, can help you get honest with yourself and what will be best for you in the long run. Set goals and make a plan Once you’ve ripped the band-aid off and have a clear idea of where you stand financially, it’s time to make a plan. This is where the budget magic happens. The key to budgeting is figuring out your priorities and goals. We recommend you decide what is worth spending on and not feel guilty about it. Remember, your budget is what works for you, not other people. Set it and forget it The easiest way to stick to a plan is to automate it as much as you can. If you get paid on the 15th and the end of the month, set up auto-pay for your bills and automatic transfers to your savings and investment accounts. The less you have to think about it and actively manage it, the easier it is to follow through and stay on track. Once you have those in place, you can worry less and free up time to do the things you enjoy. For every dollar you save, you increase the gap between you and financial ruin. This can be one of the best financial habits you start this year. Saving money takes planning and dedication but we promise, it’s worth it. When the unexpected happens, you’ll have peace of mind that no matter what life throws at you, you can handle it. Let’s look at the benefits. Save for an Emergency Life happens. If something can go wrong, you can bet it will at some point. Saving can help you breathe a little easier because you have money to cover it when the car breaks down or you get a higher-than-expected electricity bill. One of the first things you should do is build up an emergency fund. Experts vary on the dollar amount, but the most common recommendation is $1,000. Now to some this might seem impossible but remember, building an emergency fund doesn’t happen overnight. Even if you can only spare $10 - $20 a month, do it! Your future self will thank you. Save for the Big Purchases Almost anyone nowadays can get a credit card or financing. They make it easy because they want you to spend, spend, spend. But that’s a trap. Too often, it can quickly get out of control from impulse purchases and living lavishly. Don’t let yourself get in over your head with buying the latest piece of tech or going out to eat every night. That debt will take you years to recover from. Saving up for big purchases like a $600 couch or a $1,300 flatscreen tv is the right way to do it. By saving $100 a month, it means you are only 6 months away from having it grace your living room. It’s also a good way to test how much you want the item or if it was more an impulse because you saw it on Instagram. We’ve all been there. The other major benefit is you have less to worry about. Once you’ve saved enough and bought it, that’s it. It is yours to enjoy. Save to Get Ahead Money can mean having choices. The magic of compounding rewards those who start early and contribute to it regularly. Starting a retirement account can ensure a secure future. There are many options available, but the easiest option is getting retirement through your employer. Make sure you know all your options and don't be afraid to ask questions. If your employer doesn't offer a retirement benefit, there are plenty of other financial institutions you can start an account with such as Fidelity, Vanguard, and Charles Schwab. Do your research on what the best option is for you based on your situation but start as soon as you can. Making this a part of your monthly expenses will benefit you in the years to come. This is a semester-long project for COMSTRAT 563 at Washington State University. Finance Fundamentals is a fictional organization located in Walla Walla, Washington focused on helping young adults become financially literate on topics such as basic money management, debt, investing, building wealth and retirement planning.
This initiative is geared to help young adults gain confidence in managing their finances, dealing with debt, planning for the future, and building wealth. Of Walla Walla’s population, 17% live below the poverty line which is greater than the national average of 13%. The largest age group that makes up that 17% are ages 18 to 24. The goal of this organization in the short term is to generate awareness and be a free, valuable resource to the Walla Walla community. The idea is to provide tools, education, and resources to those struggling to get by. |
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