Make Being “Debt-Free” A Reality With Your NC Community Credit Union
Feeling like you are drowning in debt but don’t know where to start? Here are some tips and methods that will help you accomplish your Debt Free Dream.
Put In Place An Emergency Savings
Life is full of unexpected expenses and being unprepared can lead you down a financial tunnel that may take years to find an exit out. Putting an emergency savings in place can help cushion those financial hits and soften the effect. How much you should set aside each month is based solely on your financial situation. 3-6 months worth of saving is a good starting point towards financial comfort.
Take Advantage of Your 401k (If Offered By Your Employer)
Taking advantage of your 401K may not seem relatable to paying off your debt, but if your employer matches money, do not pass it up. Think of it as free money.
For example, on a $50,000 annual salary, if your company is matching 50 cent on every $1 you contribute up to 4%, or $2,000, your employer adds in another $1,000. If this is done yearly, in 10 years the $3,000 invested yearly could grow to more than $40,000.
Also think about increasing your contribution into your 401K: if possible contribute beyond what your employer is matching. The goal is financial freedom. Increasing your savings by 1% and saving at least 15% of your pre-tax income each year can put you where you want to be financially and help accomplish your debt-free goal.
Pay High Interest Credit Cards Down First: If Possible Pay More Than The Minimum Each Month
It may be easy to create a large credit card balance, but much harder to pay it off. Avoid using credit cards to finance purchases, especially those cards with high interest rates. In most cases you find yourself paying more for the purchase than the initial cost. If you do find yourself having to use a high interest rate credit card, be prepared to pay more than the minimum.
Also if you have any high interest rate loans above an 8% interest, such as private student loans, focus on paying those down to avoid a massive buildup of interest. You may be able to deduct some interest up to $2,500 a year, but only if you are a single filer earning less than $75,000.
Pay Monthly Minimum On Low Interest Rate Loans
Loans such as mortgages, car loans, and government student loans usually have low interest rates and come with tax benefits. This is why paying the monthly minimum make sense. Mortgage interest is deductible for federal purposes, and rates are extremely low. Car lows are about 3% and government student loans are currently around 4% with a possible tax deduction on interest. Money used to overpay on these loans can be put to other expenses or those high interest rate loans that need a quicker payoff.