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Create a Debt Elimination Plan and Set Savings Goals for 2017

strategy to eliminate debtIn last week’s blog, we talked about the importance of creating a budget plan. This is the first step in eliminating debt. Not only does it allow you to gain a deeper understanding of your financial situation when it comes time to eliminate debt, you’ll know how much of your income that you can use.

Once you know how much take home income you have to work with, you can start creating a strategy to eliminate your debt. Here are four things to keep in mind as you develop your strategy.

1. Snowball or Avalanche?

What motivates you to succeed? Do you want to pay down as quickly as possible or do you want to take some little wins along the way to keep yourself motivated?

Depending on what will motivate you, there are two common strategies for prioritizing how to pay down credit card debt.

The common terms for these debt repayment strategies are the Avalanche and the Snowball.

Avalanche – Start with the highest interest rate cards and work your way down, this saves time and money, but may not provide you with the satisfaction of paying down a card quickly.

Snowball – Paying off small debts first and let the number of cards carrying a $0 balance motivate you to keep going.

Both strategies have their pluses and minuses. Regardless of which you use, make sure that you are focused on paying more than the monthly minimums.

2. Transfer Balances

Depending on your credit score, there may be ways to transfer balances from high-interest credit cards to lower interest personal loans and 0 percent interest credit cards.

This can be an effective strategy, but only if it’s done carefully.

First, look for cards that offer a 0 percent interest rate for at least 18 months. The longer the 0 percent rate applies, the better. Also, make sure that the interest rate at the end of the 0 percent interest period is lower than your current interest rate. Otherwise, you’ll be right back where you started.

Also, remember that getting a new card isn’t a reason to spend more. As soon as you transfer a balance, you should cancel your old card, or set it aside so that you don’t use it in the future.

3. Prioritize Debt and Savings

When unexpected money comes in the form of gifts or inheritances, it’s tempting to spend it on ourselves. Whenever you can, put the money into savings or use it to pay down your credit card balances.

4. Set Debt and Savings Goals

Saving and debt elimination for its own sake isn’t enough. Setting goals gives you something to reach for, and a reason to keep money in your saving’s account.

Maybe your goal is to save up for a down payment on a home? Maybe you want to be debt free in five years?

Whatever your goal, keep track of it. Make it your reason to set aside money every month, and find new ways to save.

If you’re looking for help, our Ultimate Five Year Debt and Spending Tracker is a great resource that lets you track your progress over time. This makes it easier to set and meet your goals.

Need help getting started? Schedule a free counseling session today or call us at 800-920-2262.

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