The holiday season is upon us! If you are still paying off holiday spending debt from last year, it's time to learn how to make a spending plan and start creating a budget to get out of debt.
Creating a Budget to Get Out of Debt
If you want to get out of debt, experts recommend paying the minimum balance on all debt except for the one balance you will focus on and pay extra towards. You should pay as much over the minimum monthly payment as your budget allows.
If you want to pay off debt with the smallest cost to you, then the best choice is to pay down your debt with the highest interest rate. However a recent column in the Chicago Tribune argues that depending on your personality you may do better paying off the debt with the lowest balance. It will cost you more in the long run but that doesn't mean it's not the best choice for you.
Paying the debt with the highest interest rate – Mathematically, this is the most logical way to pay down debt. The high interest rate means that the longer you wait to pay this debt off the more money it's going to cost you. However if your debt with the highest interest rate is also your largest debt balance, it could be a long time before you see the benefits of your hard work. This delayed gratification might slow down your extra payments.
Pay the smallest balance first – Most of us like a little reward for our hard work. That's why many will choose to start paying down the debt with the smallest balance first. Then as soon as you pay off that first bill you can apply all that money you're saving each month towards a new bill. This can also help create more cash flow around the holiday season to avoid going farther into debt. If you are a person who thrives on motivation this will be the best method for you to pay off your debt.
Before getting deeper into debt this holiday season, start creating a budget to get out of debt. And if you can't pay off any bills before the holiday find a way to reduce holiday spending to avoid adding any additional debt. The key to paying off bills is to find a method that works for you. Make a plan, stick to it, and watch your debt balance shrink!
If you have any questions about getting out from under debt, contact one of our Chicago bankruptcy lawyers today! Suburban Legal Group offers a FREE Bankruptcy Consultation in our office or over the phone to help you decide if you have a viable case or not. Contact us today!
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Did You Know?
- If you have $5,000 of credit card debt and you pay only the minimum payment of $100 each month, it will take you 24 years to pay off that debt and you will pay $7,246 in interest.
- If you increase your monthly payment to $150 and pay that amount every month, you can pay off the $5,000 of debt in only 4 years and you will only pay $1,509 in interest.
*Facts from www.federalreserve.gov