Retirement Lifestyles Weekly Quick Tip
Hi I’m Patrick McNally with today’s quick tip from Retirement Lifestyles.
This week I’m talking about controlling personal debt
Let’s start with the cold hard stats… 7 out of 10 Americans live paycheck to paycheck and are loaded with credit-card debt.
In fact, according to NerdWallet.com, the average American household has $134,643 in debt with credit card balances of $16,748. The average interest rate runs in the mid- to high teens at any given time.
Let me ask you a question, have you ever felt like you wanted to start saving and investing more, but just don’t have the extra cash to do it?
Once you learn how to control your personal debt, you’ll be able to get on track and accomplish your financial goals. Here are 5 tips to get you started.
First, you need to understand that some debt is good.
For example, borrowing for a home usually makes good sense. Especially because you can write off the mortgage interest on your taxes, thereby reducing your overall tax bill.
Second, you also need to understand that some debt is bad.
It’s usually not a good idea to use a credit card to pay for things you consume quickly, such as meals, it doesn’t make sense to finance your hamburger… the same goes for vacations, unless you can pay off your bill in full every month. Using a card for these items is the easiest way to fall into debt, so try putting aside some cash each month for these things so you can pay the bill in full.
Now, I can hear a lot of you saying, but Patrick I want to get the airline miles on my card… ok, look, if you want to use that card, fine, but at least save the cash for it first over a period of weeks or months, then charge it, and then pay it all off!
Number three… Get a handle on your spending.
Most people spend thousands of dollars without much thought to what they're buying. Write down everything you spend for a month, cut back on things you don't need, and start saving the money left over or better yet, use it to pay down your debt more quickly.
Number four…Pay off your lowest balance credit cards first.
If you have multiple credit cards, add up the monthly minimum payments from each one. Whatever that number is, imagine of you could be investing that amount, instead of sending it to a credit card company.
The key to getting out of credit card debt efficiently is to pay down the lowest balance first. That way you get a small win each time you pay something off and your confidence grows. Now, whatever the minimum payment was on the last card… add it to the next one and you’ll snowball your way out of debt.
I’ve included a link below and in the youtube description for a free debt snowball worksheet. It will help you list out your credit cards and the balances. Go ahead and download it, put it to work and watch the debt melt away.
And finally number five, expect the unexpected.
Set up an emergency fund with a thousand dollars in it. You always need a cash cushion in case of an emergency. If you don't have an emergency fund, a broken air conditioner or damaged car can seriously upset your finances.
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Thanks again for joining me today, and I wish you the best in retirement!