Few things are more detrimental to financial planning than debt. From credit cards to student loans, making monthly payments impacts your ability to save for retirement and other long-term goals. The most effective way of minimizing the effect is paying off your personal loans. But what is the best approach? Learn more about creating your debt repayment plan.
Paying off debt is challenging, but thankfully with discipline and guidance, it’s possible. Here are some strategies that can help you become debt free.
An avalanche starts from its highest point, quickly gains momentum, and carries itself to the bottom of the mountain. The debt avalanche strategy follows a similar path. This involves paying off the debt with the highest interest rate first, then working through the rest.
This method means you’re paying less in interest charges over time but requires you to make the minimum payments on other obligations while working on the priority debt.
You have to learn to crawl before you can walk, and the debt snowball method targets the debt with the lowest balance first. With this technique, you establish a monthly amount dedicated to paying off the priority obligation while making minimum payments on the rest.
Then, when you’re done repaying the initial debt, you’ll begin paying the next one using the same amount of money. The total dollars being committed won’t change, but you’ll gather momentum and begin reducing what you owe.
Creating a budget is one of the most effective approaches for reducing the amount of debt you owe. It gives you key insight into how much you spend and how you can save more in the future. Developing a spreadsheet to determine where your income is allocated is the first step for proper budgeting. From there, you can adopt some of the following strategies:
- 50/30/20 budget: This method splits your income into three categories. 50% of your money goes towards items you need, 30% is allocated towards things you want, and 20% is dedicated to your savings of debt.
- Zero-based budget: If you’re practicing the zero-based budget technique, then the income you bring in minus your expenses should equal 0 at the end of every month.
- Envelope budget: Unnecessary spending is one of the biggest mistakes individuals make when trying to pay down their debt. The envelope budget strategy categorizes spending into virtual sections, like food, utilities, and housing. This helps maintain a disciplined approach.
- Minimalist lifestyle: The minimalist lifestyle means completely cutting out unnecessary expenses to maximize the amount you save. This helps you commit as much money as possible to your remaining debts.
Many nonprofit credit counseling companies offer low-cost counseling to help build a personal financial plan that reduces your debt. They can also provide educational materials that increase your knowledge of proper spending habits.
Sometimes unsecured debt becomes too much, and you become delinquent on payments. When this happens, consider working with your creditors to set up a plan or negotiate a lower amount. Some tips for this strategy include:
- Take notes: When meeting with your creditors, take detailed notes about who you met with and what they said. Sending a follow-up email creates a paper trail for your conversations.
- Get the agreement in writing: Before making any new payments, make sure to get the new debt arrangement in writing.
- Be honest: Transparency is key to negotiating a debt settlement. If you’re concerned you can’t make the new payments, alert your creditors.
Reduce Your Debt With Hobart Wealth
Are you ready to start reducing the amount you owe? Contact Hobart Wealth today to schedule your free consultation and start developing your debt management plan.
Whether you want to buy a house, save for retirement, or make sure your loved ones will be financially secure after you pass, living a debt-free lifestyle helps you maximize savings. The Hobart Wealth team understands the importance of making sound financial decisions and works without clients to ensure their strategy aligns with their short- and long-term goals. We have over 20 years of experience delivering comprehensive financial services, including:
- Asset protection and risk management
- Family protection
- Retirement planning
- Life insurance
- Legacy planning
- Incoming planning
- Tax planning
Our team leverages our knowledge to build a customized plan that best suits your needs.
We understand each individual has unique goals and needs, which is why we utilize an innovative financial planning process to build your customized plan.
What are you saving for? Each planning process begins with a consultation where one of our representatives meets with you to determine your short and long-term goals.
In order to create a well-designed plan, we must know where you’re starting from. Our advisors analyze your existing financial statement to gather vital information, including:
- The amount you currently have saved
- Existing debt
- The accounts you own
- Your risk tolerance
We believe financial plans aren’t a one-size-fits-all solution, and we take pride in building strategies based on your specific situation. Our commitment to discipline helps keep your goals on track and limits exposure to unpredictable market swings.
After designing your plan, we begin putting it into action. From helping you open new accounts to helping you transfer the funds, our team handles the coordination of all implementation steps.
We regularly review your portfolio’s performance and make the necessary adjustments to ensure it meets your needs.
Contact Hobart Wealth today to learn more about our financial planning process and services.
Hobart Wealth is a DBA of Hobart Private Capital, LLC. Investment advisory services offered through Hobart Private Capital, LLC, a SEC-Registered Investment Advisor. Insurance services offered separately through Hobart Insurance Services, LLC, an affiliated insurance agency. Investing in securities involves risk, including potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Any references to protection of benefits, safety, security or steady and reliable income refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company, and may be subject to fees, surrender charges and holding periods which vary by insurance company. Insurance products are not FDIC insured
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Hobart Wealth is a DBA of Hobart Private Capital, LLC. Investment advisory services offered through Hobart Private Capital, LLC, an SEC-Registered Investment Advisor. Insurance services offered separately through Hobart Insurance Services, LLC, an affiliated insurance agency. Hobart Private Capital and its affiliates are not certified tax or legal advisors. Any reduction in taxes would depend on your specific tax situation. You are advised to seek the advice of a qualified tax or legal professional for such matters. This information is intended for educational purposes only. It is not intended to provide any investment advice or provide the basis for any investment decisions. Investing in securities involves risk, including potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please see Item 8 of our ADV 2A Brochure for additional information on the risks associated with our services. By submitting your contact information, you consent to be contacted in the future regarding retirement income strategies that utilize insurance and investment products. Any references to protection of benefits, safety, security, or steady and reliable income refer only to fixed insurance products. They do not refer, in any way, to securities or investment products. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company, and may be subject to fees, surrender charges, and holding periods which vary by insurance company. Insurance products are not FDIC insured. Our firm provides links to third party articles to assist users in locating information on topics that might be of interest to them. Linking to an article or web site does not constitute a representation of the services offered by our firm nor does it constitute an endorsement by the Firm of the sponsors of the site or the products presented on the site. Please consult your tax, legal, and/or financial advisor prior to making any decisions regarding these third-party articles. Hobart Wealth is not affiliated with the U.S. government or a governmental agency. No information contained within was approved by, endorsed by, or authorized by the Social Security Administration.