Youíre a grown up, so you probably donít need to be reminded why racking up debt is a bad idea. But it never hurts to recap a few ways to reign in your personal debt and stay on track to help meet your long-term goals:
- Set up a budget to track your expenses and spending. Try our online Home Budget and Savings Calculator to get started. Itís easy to use and it even gives you a chart showing where your money is going.
- Use cash for everyday purchases like groceries and eating out. Youíll automatically start to rein in your spending when the money comes right out of your pocket.
- Carefully monitor your credit card spending each month. Try not to spend more than you can pay off in full each month.
- Pay more than the minimum amount due. Paying just the monthly minimum on credit cards can add extra years to pay off your balance because of all the additional compounded interest you are paying.
- Pay off the credit card with the highest interest rate first. Then pay off the card with the next highest rate. You want to pay off highest interest rates first because they eat up more of your income.
- Pay off credit cards and short-term debt before paying off home mortgages. Interest paid on short-term debt is not tax-deductible. But mortgage interest is.
- As you pay off your credit cards, keep paying into your savings and retirement plans. If you donít have a retirement plan, itís easy to open up an IRA account. An IRA lets you save for your retirement without paying taxes on the money your savings could earn while in the IRA.
- Avoid paying off credit cards by borrowing against your home or 401k. Your home and retirement are important assets. Try not to put them at risk.
A little debt is OK (and sometimes unavoidable). Itís part of life. The key is to manage debt while you continue to save. Create a balance and you can treat yourself now and then, while preparing for bigger goals like buying a home, tuition, retirement and more.