Dig Your Way Out of Debt
By Meghan Northcutt, AFC ® Candidate, FINRA Military Spouse Fellow
Last year, the Army Times reported 41 percent of Servicemembers had student loans compared to their civilian peers at 34 percent. Troops were also more likely than their civilian peers to have a home loan, car loan, and credit card balance. Military members looking at debt tend to look for ways to pay debt off more quickly in order to save money over time.
Making only minimum payments keeps you in debt. If you have a $5,000 balance on a credit card at 18.9% interest rate with a $200 per month minimum payment, it will take you almost eleven and a half years to pay off your credit card. The final cost to you would be $8,109. This example shows the idea of digging a hole using a spoon; you’re getting nowhere fast.
Using the Snowball Effect, you are able to switch from using a spoon to a shovel to dig your way out of debt. Start by listing all of your debts with balance, interest rates, and minimum monthly payments. Examine your list closely. Some experts recommend paying down debt starting with the highest interest rate while others recommend starting with the lowest balance. Whichever method you choose, put as much extra money toward your chosen debt as possible each month. Be sure to continue paying the minimum payment on all other debts. When your first debt is paid off, apply the minimum monthly payment plus the extra toward your second chosen loan. The more loans you pay off, the more money you’ll be able to put extra toward each targeted loan. Essentially the money builds like a big snowball until all your debts are gone and you’ve dug through your debts into financial freedom.
- Written by Guest Blogger
- Category: Blog
- Published: 16 September 2014