3 Tips To Mastering Debt Payoff Like The Pros
For a small, four-letter word, debt can take up a lot of space and time. But how do we learn to manage it and say "goodbye" to debt for good?
One of the Rocket Loans founders and President, Todd Lunsford, noticed an opportunity to stop people from saying "If I only had more money to prioritize time with friends…" or "If I only knew how to pay off my credit card debt..." and helped them by creating an automated online lending experience that allows people to easily achieve more for themselves and their finances.
And wherever you are (literally or figuratively), you can get started as soon as today with Rocket Loans’ online platform. But being financially aware is something that people can practice beyond receiving personal loan funds in their account. It’s also about money management and building healthy habits toward eliminating debt.
Lunsford explains his own personal practices and what people should keep in mind – to have peace of mind – when each monthly payment comes.
1. Invest In Your Hobbies Over Time
Expensive hobbies, like golf, scuba diving, music, photography or even skiing, can quickly add up. Lunsford advises that someone paying off debt but still wanting to enjoy an expensive hobby should always budget then practice.
"Use old equipment to start your interests and then maybe reward yourself after you reach certain lesson milestones," says Lunsford. "For example, hitting a hundred golf balls could mean taking the day to actually get out on the course."
When you’re paying off debt Lunsford also doesn’t recommend charging anything new. Instead, save money and only spend it when you have enough to pay for the vacation or big event (it will make those events more special, too!).
"Making reasonable sacrifices now will feel worthwhile once you become debt free," says Lunsford. "So practice your swing in the yard today and save up to go enjoy special days out on your favorite course."
2. Budget And Plan With Only What You Have
When it comes to reframing and categorizing your monthly budget, make sure you do so by knowing what you actually have vs. what you expect to have to spend on expenses.
"I remember thinking credit was ’cool’ as a young adult," admits Lunsford. "I used to sign up for almost every card I was offered, even if I didn’t need it, and when I had no real responsibilities, it didn’t matter much."
Credit cards help us enjoy ongoing fun. But when we transition to large life investments like grad school, marriage and kids, budgets need to change.
"I went from having fun to budgeting fun into my planning," says Lunsford. "I became committed to structuring my life and paying off my bad debt on known income."
Known income means not planning for bonuses, tax refunds or overtime as a reliable income – only what’s certain. And for Lunsford, anything above his "known income" went to paying down expensive debt, building long-term savings and investing in stocks.
3. Eliminate Any Bad Debt
Lunsford compares debt to cholesterol: some debt is not bad for you, but other debt can really hurt you.
"It’s never too late to have self-discipline with your finances – after all, the sooner you aren’t tied down by debt the better. That’s why it’s so important to take the time to set up your budget and eliminate the ‘bad’ debt first."
Understanding Good Vs. Bad Debt
When it comes to the different types of debt, good debt is considered your mortgage or a loan that has a fixed term. Bad debt is typically revolving debt – with high interest – that may never go away.
"Create the right habits and eliminate excuses for not holding yourself accountable," warns Lunsford.
Similar to compound interest, you should make consolidated payments until your bad debt is gone. You need to avoid minimum payments, craft a repayment plan and stick with it!
"I put my energy – and whatever I could in my budget – toward paying off my bad debt,” says Lunsford. “Regardless of my interest rate I paid off all my lower balances first. I did not deviate from that strategy until my bad debt was gone, which took less than five years!"
Master Your Finances With A Personal Loan
As mentioned earlier, investing in yourself with good debt (mortgage) can help your financial situation down the road. And for a financially mindful person, a personal loan can act as one of those "good debts."
Personal loans are fast funding, with fixed rates, that people can use for nearly any purpose. Although some reasons make more sense than others. For example, debt consolidation helps eliminate costly, revolving debt and making home improvements helps improve the value of someone's home and lifestyle.
"When you think about using in-store credit or pulling out a credit card for major expenses – consider applying for a personal loan instead," advises Lunsford. "Carrying large balances on a credit card month after month can easily run up and cost you way more than you might expect."
Why Fixed Payments Matter
What’s the big deal? Why do fixed payments make a difference?
"Fixed payments, rates and terms provide certainty," says Lunsford. "Being held accountable and using reliable tools that require you to accomplish certain things (like, being debt free in a few years) motivate you to stay on track to improving your finances faster."
Are You Ready To Master Your Debt?
When it comes to mastering your debt payoff plan, the bottom line is that you just need to start. Budgeting your income now and thinking about how your financial choices will improve your life later, especially when paying off bad debt.
"If you are incredibly disciplined throughout the next few years, most of us can see the road to financial recovery sooner vs. later,” says Lunsford. “Then, we get to celebrate and start putting extra money toward actually enjoying our well-paved future."
For more smart financial resources and debt payoff strategies check out our Rocket Loans Learning Center.
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