Credit is a big part of our everyday lives. When used properly, credit can be a powerful tool that can help when working towards bigger goals like earning a degree or buying a home. The downside of using credit is it can be easy to purchase things you can’t afford, which can weigh down your budget and quickly become overwhelming.
If you feel overwhelmed by debt – or want to stay out of debt in the future – there are a few easy steps you can take:
1. Stay in the know.
It’s important to know who you owe and how much you owe. For example, you may have a mortgage, credit cards, or car payments. Keep a record of your balances, the interest rate charged, your monthly payments, and the remaining term on your loans. If you have credit card debt, know the balances you owe and the interest rates.
2. Make a budget and stick to it.
A monthly budget is a great way to manage debt and achieve financial success. You can use online banking, your checking account statement, or a budgeting software/app to view your monthly expenses and income to create a budget. Once you know your expenses, categorize them by “needs” and “wants.” Needs include your mortgage, rent, utilities, or food. Wants include discretionary purchases, such as dinners out, subscription services, or vacations. Go through your wants, find the things you can do without, and use the money you’ve freed up to pay down your debt.
3. Make a plan.
There is no wrong way to pay down debt, but a few approaches have proven to be highly successful. One such strategy involves paying down your higher-interest debt first. The thought behind this option is to get rid of the debt that is costing you the most each month. Another option is to pay off the smallest debt you have first. When you pay off the smaller debts first, you can take the funds you were using to pay on those debts, add them to the next, and so on. Whichever option you choose, stick to your debt payment plan.
4. Take your credit cards out of your wallet.
As you work on paying down your debt, be careful not to add new debt. If you use your credit card to pay for everyday expenses, pay off the amounts you charge. Remember this simple rule: don’t charge anything you can’t afford to pay for in cash.
5. Make your payments on time.
Debt already carries a higher cost, but late payments can cost you even more– with higher interest rates, costly fees, or both. So, make payments on time, every time.
6. If possible, consolidate higher-interest debt.
Another option for paying off your debt is to consolidate higher-interest debt with a balance transfer offer. Again, be careful not to add new debt on credit cards you pay off.
While getting your debt under control can seem overwhelming, here’s one very important piece of advice: don’t give up! If you stay committed to your plan, you can get out of debt.
Have questions or need assistance?
If you have questions about this topic or need assistance with your banking needs, please speak to one of our bankers at your local Bar Harbor Bank & Trust branch. We’re here to help you build a solid financial future.
