It’s springtime at last – time to take stock of your surroundings and get rid of the clutter that has accumulated in your home and finances. By applying the same techniques you would for cleaning your house, you can follow the same steps to help eliminate or reduce your current debt situation. Here are a few strategies that can help you get started:
Eliminate credit card debt.
If you have a significant amount of credit card debt, create a payment strategy to help eliminate the revolving account. Some options include:
- Prioritizing repayments to credit cards with the highest interest rates, working down the line from highest to lowest.
- Making lump sum payments on the debt, using available funds, such as tax refunds, employment bonuses, etc.
- Utilizing balance transfers, if they result in cost savings.
- Making more than the minimum payment and/or making additional payments. Focus on reducing the length of the loan and the total interest over the life of the loan.
If you currently have consumer loans, such as a mortgage or auto loan, review your interest rates. If you are paying a higher interest rate, you can refinance your loan resulting in lower monthly payments and potentially pay less interest per the loan term. Keep in mind that refinancing often involves its own costs (e.g., points and closing costs for mortgage loans), and should be factored into your calculations.
Loan consolidation involves rolling small individual loans into one large loan, allowing you to make only one monthly payment instead of many. By doing this, you could lower your interest rate or extend the loan term. Some people find it is easier to focus on paying down debt with just one loan to pay. Keep in mind that if you do extend the repayment term on a consolidated loan, it may take longer to get out of debt and end up costing you more in total interest charges.
Meet the Author
Partner, Director of Corporate Retirement Plans
Heather Wonderly, AIF®, CPFA
Heather has been working in the investment field since 2000. She provides guidance to 401(k) pension committees, helping them understand investments, compliance, fiduciary responsibility, and administration for corporate retirement plans. She also provides ongoing employee education to plan participants. She holds an Accredited Investment Fiduciary® and Certified Plan Fiduciary Advisor credentials and has also completed the…
- Certified Plan Fiduciary Advisor
- Series 7 and Series 66 security exams
- Accredited Investment Fiduciary®
- Corporate retirement plans