Does debt keep you up at night? I sure hope not!
If you are reading this blog post, I will safely assume one of two things. 1.) You are savvy and insightful when it comes to managing your finances, or 2.) This is the first step that you are taking to create the financial stability you deserve as you govern your personal and professional enterprises. Before we delve right into debt pay-off methods, let’s touch briefly on the basics of credit.
Given the current economic climate as well as the myriad of Women operating as self-governed entities, the opportunities for personal advancement (including sound finances) are endless. With that said, strategically planning and implementing a cohesive process that includes deliberately leveraging credit. Let’s touch on the basics.
Credit is a culmination of these 5 components:
Character- Speaks to the story that your credit score and report relays to creditors. Think about it, future and prospective lenders do know you from a hole in the wall. Thus, your credit report and scores paint a vivid and descriptive picture of who you are as a creditor. Do you make timely payments? Do you carry a balance or pay in full? Etc.
Conditions- Please be sure to gain a comprehensive understanding of the terms outlined by the creditor. Examine and compare interest rates as well as payback penalties, excessive fees, annual fee contributions, etc.
Capital- What do you bring to the table? Do you have any skin in the game? Creditors like to know that you won’t run off on the plug…literally. Typically, three months of reserves allow the creditors to gain a certain level of comfort.
Capacity- Goes hand in hand with Capital. This essential speaks to your ability to pay creditors back. Can be measured by assets, viable income, or a combination of the two.
Collateral- In most cases, collateral describes an item(s) that can be bartered by the individual seeking credit to imply good faith. Further, the item(s) may be repossessed by the creditor in the event that payment defaults.
So now that we have that information under our belt. How do we manage the credit and/or debt that we have already amassed?
One of my favorite methods to pay the debt down and off is the snowball method. When you find yourself staring at your credit card bills, car note, hospital bills, etc. and you don’t know where to start…the snowball debt method is a trusted ‘go to’. Here’s why: by leveraging the snowball method, the user is able to experience quick confidence boosters as the balances on debt owed begin to diminish.
Here’s how it works:
Sit down with your budget. Start by reviewing your monthly net (after taxes income), place that at the top of your list or worksheet if you’re a savvy Excel user. Then begin to list your non-negotiable items, your needs, such as childcare expenses, home loan or rental payments, car notes, etc. Next outline the items that you desire, your wants. Now some may argue that their cell phone expense is a need vs wants, and I am inclined to agree… sort of. Granted, in today’s world we all require access and communication. However, we do not all require the latest and greatest iPhone with all of the extended features. And while we are in the process of managing our finances, ascertaining what we can afford and what makes the most sense while we are paying debt down, reviewing your service providers for both phone and internet are definitely a great place to start. Once we have our needs vs wants clearly delineated, let’s head on over to the debt.
To begin the snowball debt method; take a look at the smallest balance you are carrying on a card or line of credit, list that first. Then begin to list the debts as the balances increase. Next to each debt listed, ensure that you are capturing the balance owed as well as the minimum payment required monthly. An example:
Now that you have established wish debt you wish to pay first, let’s discuss the way in which this actionable item will be completed. To be effective in this process, remain disciplined in the payment approach. Pay the minimum required payment on each of the cards, except the smallest debt. In the example used above, this would mean paying the minimum on the BOA & Macy’s cards while at least doubling the Capital one payment. As soon as the capital one card is paid off, you then take the amount that you were paying for that card’s minimum balance and roll it into the next payment. Referencing the example listed above, the Cap1 payment is paid off. Now take the $25 that would normally go toward the Cap1 payment and apply it to the Bank of America card payment, now you are paying at least $75 toward the card instead of $50. If it is in your budget, increase the payment to $100.00. Now your payment schedule looks like this:
Repeat the snowball debt method process until you find yourself completely DEBT-FREE!!!!
For additional assistance calculating debt and managing balances please see the link(s) provided below. As always if you have any questions or would like additional information on debt or any other topic drop a comment, like, and subscribe to the blog! Also, find me on IG @ __krownmeking__ or firstname.lastname@example.org