One of the popular New Year’s resolutions is to become more financially prosperous. But where do you start?
Two of the more popular goals when we start the new year is to either pay down our debt or save more money. On the surface, these seem like two contradicting objectives. If you try to save more money, then you have less money to pay down your debt. However, if you pay down more debt, then you should have more money to set aside in your savings account.
The key is to set more specific goals than something as generic as “pay down debt” or “save money”.
Before you begin to tackle your debt, be sure to set aside some money in your savings account for emergency purposes. It’s important to have at least $1,000 for any unexpected expenses. These expenses should be separate from any money that is part of your monthly budget for your loan payments, utilities, groceries, transportation, etc.
Next, start paying down your debt. There are several ways to approach this. The temptation is to start with the largest balance first or the debt in which you are paying the highest interest rate. But you may be more motivated to achieve your financial goals if you compile some early victories.
Make a list of the debts you owe – auto loans, credit cards, your mortgage, etc. Start paying off your debt by tackling the smallest amount. You will feel a sense of accomplishment, and then you’ll be more likely to pay down the rest of your debt since you’ve experienced what is possible.
When you pay off the first item on your list, take the amount that you would spend usually on a month basis on that item and apply it to the next item. For example, if you pay off a car that had a $300 monthly loan payment, take that $300 and apply it towards what you are paying on your credit card each month. Continue this method until your debt is paid off. This is popularly referred to by Dave Ramsey as the Debt Snowball.
Plus, you can track your progress using Crane’s MoneySmart tool in Online Banking. You can add in your accounts from other financial institutions, set goals, and track your spending – all in one place.
Good luck in 2016 from every one at Crane Credit Union!
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