How To Pay Down Your Debt For Better Financial Health

Be ready to tackle some tough choices and trade-offs if you are aiming to grow and accumulate wealth. Your planning should start as early as possible so that you have a reasonable early start on your roadmap to accumulate wealth, have financial flexibility, and retire comfortably and early.

To strengthen your financial health, you need to plan when borrowing and know how to pay down your debt wisely. You will likely accumulate debt in your life but you need a plan to pay off the debt so you aren’t carrying a burden you cannot handle.

Pay Down Your Debt On Time

This will lessen your debt burden and potentially lessen theirs as well. About two in ten adults who took out student loans were behind in payments according to the latest figures. Plan to get the more attractive federal loans before seeking loans from private banks. Apply for scholarships, grants, and work-study programs.

Buying A Home

The fed funds are a short-term rate, but fixed-rate mortgages are long-term. When you borrow money to pay for your home purchase, you will likely choose between conventional fixed-rate mortgages or an adjustable-rate mortgage (ARM)

Consider 15 year fixed mortgages vs. 30 year fixed mortgages

When buying a home, consider opting for a shorter-term mortgage as your total cost will be lower and ends sooner. While it would be nice to get a price pop on your home, remember you are living in it and hopefully enjoying the house. If you are fortunate to get a low mortgage rate for a shorter timeframe, this will be a  good way to pay off debt.

Good Debt versus Bad Debt

If you can get an affordable mortgage by buying a home you will love, you should realize modest home appreciation, pacing inflation. Your home should allow you to preserve your capital. Don’t overleverage yourself with credit card debt. Have rules you can keep. Pay off your credit card balances in full every month. Then you won’t have any interest charges at all.

Be careful about what you put on your credit card

When you shop for credit cards, make sure you read the fine print known as the terms and conditions. You need to understand your effective annual rates, the penalty rates, late fees, and such. When you get overwhelmed with your credit card balance and your debt balances, make reducing your debt levels your top priority.

Two methods to reduce debt: the Avalanche Method and the Snowball Method

Using the avalanche method, your priority would be to pay down your debt that is most costly first. Mathematically, the avalanche way makes sense to rid yourself of high-cost debt. That debt grows faster and your total interest costs will likely be lower using the avalanche method.

Two methods to reduce debt: the Avalanche Method and the Snowball Method

The snowball method is gentler. Here, you begin to pay down your debt, looking for the smallest amounts first, and tackling larger amounts afterward.  Here, you would pay the smaller amounts in the miscellaneous total before challenging yourself with the bigger amounts at higher rates. You will likely be paying more in total borrowing costs.

For those who are highly motivated, analytical, and ready to take on the task to lower their borrowing costs, the avalanche method is better. It is truly a personal choice. The best choice is to get started on addressing your debt so you can move on to better financial health.

SWIPE UP TO KNOW more ABOUT How To Pay Down Your Debt For Better Financial Health