A second mortgage is a loan, in addition to your primary mortgage, that uses your home as collateral. Any homeowner who has 20 percent equity in their property and a decent credit score can get approved for a second mortgage in the form of a home equity loan or line of credit. While it might be easy to get approved for a new loan, it’s important to understand when you should take out a second mortgage and when you should look for alternate ways to pay for expenses.
Why Do You Need a Second Mortgage?
From paying off debt, to sending a child to college, to going on a killer vacation, reasons people take out second mortgages vary tremendously.
A second mortgage can be a good idea if it means furthering future wealth in some way. Many investors use this money to buy income properties or start small businesses that will generate profit. Using a second mortgage to obtain an advanced degree that offers higher salary potential might also be an excellent use of a low-interest loan.
Taking on debt to fund things you can’t afford to pay for in cash but want right now does not help improve your bottom line. Before using a second mortgage to pay for lifestyle upgrades, ask yourself: Are you okay to still be paying off this year’s vacation or new refrigerator in 10 years?
Using a Second Mortgage to Pay Off Credit Card Debt
For people struggling with consumer debt, taking out a second mortgage to pay off credit cards can mean lower payments at a lesser interest rate. However, that strategy is not a good idea unless you first change the behavior that caused the debt in the first place. Otherwise, having available credit might tempt you back into debt – with the addition of having a new mortgage payment.
While money from a second mortgage might seem like a good idea in the current low interest rate climate, it’s important to remember that your primary residence is securing the loan. Could you still make mortgage payments if you lost a job or had an extended illness?
No one wants crushing credit card payments, but if you default on consumer debt, the worst that happens is getting calls from creditors and taking a huge hit to your credit score. Credit card companies can’t physically take anything away. Defaulting on a second mortgage could mean losing your home.
A Second Mortgage to Avoid PMI
Private mortgage insurance or PMI, is that pesky monthly fee that homeowners have to pay if their down payment was less than 20 percent. In some situations, taking out a primary mortgage for 80 percent of the loan and using a home equity loan and a smaller down payment to fund the balance can eliminate PMI. Just be sure that the costs of the second mortgage aren’t more than the cost of paying PMI.
Alternatives to Taking a Second Mortgage
If you aren’t sure that a second mortgage is a good idea, you have options. It might be possible to refinance your home into a lower interest rate or longer loan term without adding extra debt. If you have a large amount of home equity, it could be a good idea to sell your current home and downsize to a more affordable living situation. Lowering your monthly house payment can free up money to use for expenses or investments.
Increasing Income Instead of Adding Debt
Finally, most people can make more money if they are willing to take on more hours at work or add a side job. In many cases, it’s well worth the effort to increase income to afford an upcoming expense rather than increasing debt with a second mortgage or other loan.
Whether or not you should take out a second mortgage is something that should be carefully considered. If borrowing more money means increasing wealth, it can be a good way to leverage debt to your advantage. If more debt means risking your home, it’s probably not a smart idea.
Kim Parr is an author who writes about achieving financial success on Eyes on the Dollar.
This post may contain affiliate links. Please read my disclosure for more information.
The key to avoiding burnout while paying off debt is to reinvigorate your motivation. Here are 11 ways you can stay motivated and energized to avoid burnout when paying off debt.
1. Work With Purpose
The first step to any journey is identifying the destination. It’s no different in becoming debt free. But debt freedom isn’t the destination. It’s an essential stop along the way, but understanding that there’s life after debt is imperative to making it out of debt and staying there.
What’s your purpose for getting out of debt? Ours is to have career and lifestyle freedom. We want to be able to quit or be let go from our jobs and have savings to hold us over until we find something else or create our own career.
When the struggle is real it’s this purpose that will grab you from your whiney tower and pull you back down to reality.
2. Use Time Management Hacks
Do you feel like you need more hours in the day? Maybe you just need better management of those hours.
There are productivity methods you can use to be more efficient and avoid burnout. I’ve been really interested in the Pomodoro method of breaking tasks into 25-minute chunks with 5-minute breaks. Lots of freelancers swear by it.
Start with the tasks you have, do those more efficiently and see if extra time to rest doesn’t pop up right when you need it.
3. Eliminate Tasks
Maybe with the best productivity hacks, you still can’t fit it all in. Between multiple jobs, family, friends, errands, keeping a semi-clean house, cooking, etc, etc, etc; you can’t do everything.
If your time is worth more working than doing simple tasks then you can afford to delegate rather than work less. You can hire someone to clean your house, have your groceries delivered, or buy the precut veggies.
Prioritize the tasks that get you closer to your goal and eliminate the ones that don’t.
4. Give
Giving time or money can feel like you’re connecting to the world even in your gazelle-intense bubble. We do it by volunteering and giving to our church but there’s no shortage of options for you to sacrifice a little to make a big difference in others lives.
I also think giving of your experience is helpful. It’s cathartic, reminds me what I’ve accomplished and helps others learn how to live through my story. You can do it through Facebook, Instagram, or by starting a blog.
I’m obviously an advocate for sharing stories through a blog. The number of people you can reach is huge. It’s also a way to pad your income and lay a foundation for establishing career freedom. You can read my how-to on starting and monetizing a blog here.
5. Exercise
I use exercise to break up the monotony of my day. When I was working three very inactive jobs exercising was the outlet where I could make the stank face I wanted to make all day and no one would ask me what was wrong.
And I don’t need to remind you of the physical benefits exercising has on improving energy, sleep, and motivation — but clearly I will.
I pay big bucks for Crossfit because the community and direction are invaluable to me. But there are plenty of ways to work out for free or cheap if it’s not as high on your priority list.
6. Celebrate Wins
Every time we pay off a loan we have a little celebration. Sometimes it’s as small as texting a ton of emojis back and forth and sometimes it’s having a meal out.
More than once my disdain for cooking has motivated me to put a little extra on a loan to clear it up and go out for dinner. Having fun times to look forward to keeps us motivated and has ultimately helped us get where we are quicker.
7. Stop Being a Perfectionist
Perfectionism is the enemy of progress. Relinquish the need to have a perfect budget, perfect income, or perfect life circumstances.
Emergencies will come up, weaknesses will win, and income may fluctuate but if you drive yourself crazy over every setback you’ll never win!
Embrace the mistakes and “Murphies” and you’ll have a much better time getting through this thing.
8. Track Progress
In our apartment we had a thermometer we’d color in when whenever we made a payment. It got lost in our recent move (RIP thermometer).
People have come up with really cool ways to visually track their debt progress. You can check them out here where I also have a downloadable thermometer pdf you can print off and color yourself!
9. Share Your Successes
I have a friend living 1200 miles away from me who texts me whenever she pays off a debt or makes a substantially good money decision. It allows me to encourage her by telling her how proud I am of her, how great she’s doing and I send lots of bitmojis.
Travis and I do this too. When we do well with money we lift each other up and encourage each other in our strengths.
Hearing from someone else that you’re doing well isn’t fishing for compliments, it’s reassurance that you’re making it! Find someone you can share with. This is really easy with a spouse but a supportive friend works just as well.
10. Keep Good Company
Having friends that are also paying off debt or are supportive of you doing it is clutch. Saying no to spending money can be isolating. Having friends who want to hang out at home or at parks instead of bars and restaurants make the weekends much easier.
Some people don’t care about their financial future right now. It doesn’t make them bad people or even irresponsible.
I repeat: It doesn’t make them bad people or irresponsible.
But you’re in a different place than they are and you need to keep company that’s on the same page or you’ll keep spending and spending because saying no every week is near impossible.
11. Be Real
Don’t be fakin it. If you’re behind on your debt snowball don’t pretend you’re doing fine.
The more you lie about your progress the more backed up you’ll feel which could lead to giving up. When you’re honest with yourself and the people around you, you’ll stay committed to the process and help more people with your story.
I hope these steps will help you avoid burnout and stay committed to this process, because it is worth every sacrifice and every no that comes out of your mouth. And I’ll be here every step of the way to see you through it.
” data-medium-file=”https://i2.wp.com/www.modernfrugality.com/wp-content/uploads/2017/05/1-e1496167199424.png?fit=170%2C300&ssl=1″ data-large-file=”https://i2.wp.com/www.modernfrugality.com/wp-content/uploads/2017/05/1-e1496167199424.png?fit=339%2C600&ssl=1″ loading=”lazy” data-pin-title=”11 Steps to Avoid Burnout When Paying off Debt” class=”aligncenter size-full wp-image-1073 jetpack-lazy-image” src=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/11-steps-to-avoid-burnout-when-paying-off-debt.png” alt=”We have been so burnt out! These tips were so helpful in motivating us to start again!” width=”400″ height=”707″ data-recalc-dims=”1″ srcset=”data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7″>
” data-medium-file=”https://i2.wp.com/www.modernfrugality.com/wp-content/uploads/2017/05/1-e1496167199424.png?fit=170%2C300&ssl=1″ data-large-file=”https://i2.wp.com/www.modernfrugality.com/wp-content/uploads/2017/05/1-e1496167199424.png?fit=339%2C600&ssl=1″ loading=”lazy” data-pin-title=”11 Steps to Avoid Burnout When Paying off Debt” class=”aligncenter size-full wp-image-1073″ src=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/11-steps-to-avoid-burnout-when-paying-off-debt.png” alt=”We have been so burnt out! These tips were so helpful in motivating us to start again!” width=”400″ height=”707″ data-recalc-dims=”1″>
<img data-attachment-id="4790" data-permalink="https://www.modernfrugality.com/steps-avoid-burnout-paying-off-debt/mf-11-tips-to-avoid-burnout-while-trying-to-payoff-a-ton-of-debt/" data-orig-file="https://i2.wp.com/www.modernfrugality.com/wp-content/uploads/2017/05/MF-11-Tips-to-Avoid-Burnout-While-Trying-to-Payoff-a-Ton-of-Debt.jpg?fit=735%2C1102&ssl=1" data-orig-size="735,1102" data-comments-opened="1" data-image-meta=""aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"1"" data-image-title="Got a ton of debt to payoff?" data-image-description="
Tips to help you payoff a ton of debt without burning out. Tips and tricks from a woman who paid off over $78,000 in under 2 years on average salaries. #debtpayofftips #debtpayoffmotivation #budgetingtips #budgetinghacks #moneytipsformillennials
” data-medium-file=”https://i2.wp.com/www.modernfrugality.com/wp-content/uploads/2017/05/MF-11-Tips-to-Avoid-Burnout-While-Trying-to-Payoff-a-Ton-of-Debt.jpg?fit=200%2C300&ssl=1″ data-large-file=”https://i2.wp.com/www.modernfrugality.com/wp-content/uploads/2017/05/MF-11-Tips-to-Avoid-Burnout-While-Trying-to-Payoff-a-Ton-of-Debt.jpg?fit=400%2C600&ssl=1″ loading=”lazy” width=”400″ height=”600″ data-pin-title=”Got a ton of debt to payoff?” data-pin-description=”Tips to help you payoff a ton of debt without burning out. Tips and tricks from a woman who paid off over $78,000 in under 2 years on average salaries. #debtpayofftips #debtpayoffmotivation #budgetingtips #budgetinghacks #moneytipsformillennials” src=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/11-steps-to-avoid-burnout-when-paying-off-debt.jpg” alt class=”wp-image-4790″ srcset=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/11-steps-to-avoid-burnout-when-paying-off-debt.jpg 400w, https://i2.wp.com/www.modernfrugality.com/wp-content/uploads/2017/05/MF-11-Tips-to-Avoid-Burnout-While-Trying-to-Payoff-a-Ton-of-Debt.jpg?resize=200%2C300&ssl=1 200w, https://i2.wp.com/www.modernfrugality.com/wp-content/uploads/2017/05/MF-11-Tips-to-Avoid-Burnout-While-Trying-to-Payoff-a-Ton-of-Debt.jpg?w=735&ssl=1 735w” sizes=”(max-width: 400px) 100vw, 400px” data-recalc-dims=”1″>
Jen Smith is a personal finance expert, founder of Modern Frugality and co-host of the Frugal Friends Podcast. Her work has been featured in the Wall Street Journal, Lifehacker, Money Magazine, U.S. News and World Report, Business Insider, and more. She’s passionate about helping people gain control of their spending.
This post may contain affiliate links. Please read my disclosure for more information.
When my fiance told me he wanted to pay off his student loan debt as fast as possible, my short answer was “NO.”
The little voice inside my head kept reminding me of all the things I’d miss out on if I couldn’t spend money.
It’s not that I didn’t want to pay off my student loans. In grad school, my plan was to have them paid off before I turned 30. But somewhere along the way the compounding interest and dinners out with friends paralyzed me into thinking it simply couldn’t be done.
So when I [finally] got on board with this crazy idea that we’d pay for our wedding in cash and pay off both our loans (and a car loan I’d picked up along the way) I was terrified I’d be a friendless hermit by the end of it.
How to Pay Off Debt Without Becoming a Hermit
But it didn’t take long to see that there’s a lot more to living than tacos, coffee, and vacations. I didn’t stop spending altogether (at least all the time) I became more selective with my spending.
And being selective with my spending means I no longer waste my time on things I only kind of like and I value the things I really do enjoy so much more.
So in order to do more of the things I love that do cost money, we trade in activities like movies, theme parks, and weekend getaways for free activities. Here are some of my personal favorites that you might like too.
The Library
The library is a treasure trove of fun. It’s grown from novels and encyclopedias to include eBooks, DIY books, CDs, movies, and so much more than I could’ve imagined as a kid.
I’ve discovered amazing recipes, learned macramé, and my husband, who doesn’t love reading, has even gotten in on it recently. And it’s free. You don’t even have to search high and low for what you want.
Search the library database from the comfort from your home and request a hold on any item, they’ll deliver it to the library of your choice and alert you when it’s there. Easy peasy!
It’s also an alternative to coffee shops for getting work done. There are quiet spaces and even room rentals available.
Social Running Groups
We love the running group we’re a part of. You can find them at most running stores or groups and events on Facebook. For us, there’s at least one on any given side of town and usually every night of the week.
Most do a 5K(ish) run that starts and ends at a store or bar. Trust me when I say all levels of runners/ walkers/ joggers participate. And since the pack disperses pretty early on it’s easy to cut your run short and not be noticed (not like I ever do that ;))
Trav and I don’t always run together, but sometimes we do, other times I’ll run with a friend or by myself. Everyone meets back up at the end and hangs out. Some groups have raffles or free beer at the end.
Yelp Events
You know about Yelp right? It’s a website/ app that you can find new places to eat, drink, and play. Each city has a Community Ambassador that hosts Yelp events, they are awesome and make for a great free night out.
We’ve been to many and have been thoroughly impressed. The ones we’ve been to have included free food from local restaurants, free (alcoholic) drinks, and lots of free Yelp swag. One even gave us an hour of unlimited gameplay at an arcade, so fun!
You have to be diligent in checking for these official Yelp events, they always fill up. When you find one RSVP on the event page then wait for a confirmation email. There are no +1’s so everyone has to RSVP and get confirmation individually to attend together.
Pantry (Dinner) Party
The dinner party is an oldie but a goodie. You may have to buy some groceries for this one or you can use it as an excuse to clear out the pantry and fridge.
A side dish that goes with nothing? Vegetable about to go bad? Anything [almost] freezer burned?
Get some friends together and it’s sure to be a food match made in conglomerate heaven. And you get the bonus of spending time with good friends or building relationships with new ones!
Bike Ride
Self-explanatory. We love a good bike ride. We live right off a trail and it’s another great exercise activity to do with your significant other, friends, or just by yourself.
And if you want to meet new people, many cities have biking clubs on most days of the week and ranging in speed/experience.
Home Improvement Class
If you own a home or are thinking about purchasing one, this is a great one. Home Depot offers free workshops on everything from installing light fixtures and tile to water conservation hacks and a DIY dog feeder.
Even if you don’t own a home these are great tricks to have up your sleeve for when that time comes.
And it’s empowering to know that if something breaks I can fix it or if he’s at work I can install it. There’s something to be said for the confidence (and frustration) completing a home improvement project can bring.
Events in the Park
We live in a city that loves to be outside and that means tons of free events, orchestra nights, movies on a big screen, fireworks, and parades to name a few. We love bringing a blanket, some chairs, and a picnic for the evening.
The trick is getting there early to find free parking and bringing your own food to avoid the temptation of all the vendors.
This is also a great activity to do in groups because a lot of these things only happen once or twice a year and everyone attends, so why not go together!? Find your city’s event calendar or downtown blog to find out what’s available.
Volunteer
We volunteer at our church and at a foster group home in our area. Volunteering is an amazing way to see your partner interact with others, to grow in boldness (hi introverts) and get to do something for free that helps others and makes you feel good.
I love Habitat For Humanity (make use out of those home improvement classes!) and Big Brothers, Big Sisters (there’s a Big Couple option that’s really fun.) There are options for all time commitments.
And it’s not limited to humanitarian groups. You can volunteer at events like music and food festivals for a couple hours then enjoy those events for free!
Find Water
As a couple who lives 15 minutes from the beach, it’s a wonderful place to relax and feel like you’re somewhere else for a few hours. Trav can play Frisbee with his friends while I nap under the umbrella (I’m dreaming of it right now!)
You may not be close to a beach but you’re probably near some body of water (even if it’s frozen over right now.)
Bring your own drinks and food for the day and it’s a free vacation! You may have to do some extra searching beforehand to find free parking but it’s totally worth it. Don’t forget to reapply sunscreen! Even in winter!
Pokemon Go
And last but not least, the phenomenon that really inspired this post several years ago, Pokemon Go. Can you believe people are stil playing this game!?
Seriously though, it’s amazing to me how addictive this game is and the fact that it’s totally free. Trav and I have been in a head to head battle to see who can catch the best Pokemon, who can level up faster, and walking/running like crazy to hatch those eggs!
Bonus: your group run can double as a Pokemon adventure. I’ve hatched many an egg that way.
And I think a little competition in any relationship is a good thing, just know when to comfort your brokenhearted husband when you catch the Pikachu first. Love it or hate it this is a fun game to play together.
<img data-attachment-id="2601" data-permalink="https://www.modernfrugality.com/10-free-activities-for-couples-paying-off-debt/10freeactivities-2/" data-orig-file="https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?fit=735%2C1102&ssl=1" data-orig-size="735,1102" data-comments-opened="1" data-image-meta=""aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"" data-image-title="10 free activities for couples paying off debt" data-image-description="
10 free activities for couples paying off debt
” data-medium-file=”https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?fit=200%2C300&ssl=1″ data-large-file=”https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?fit=400%2C600&ssl=1″ loading=”lazy” data-pin-description=”Are you tired of feeling like you have to stay at home 24/7 while paying off debt? Here are 10 free activities to do with your partner while paying off debt. #debtpayofftips #debtpayoff #howtogetoutofdebt #freecouplesactivities #freedatenightideas #frugaldatenight” data-pin-title=”Free Activities to Live a Little While Paying Off Debt” class=”aligncenter size-large wp-image-2601 jetpack-lazy-image” src=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/10-free-activities-for-couples-paying-off-debt.png” alt=”These 10 free activities for couples paying off debt are great! #payoffdebt #frugalfun” width=”400″ height=”600″ data-recalc-dims=”1″ data-lazy-srcset=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/10-free-activities-for-couples-paying-off-debt.png 400w, https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?resize=200%2C300&ssl=1 200w, https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?w=735&ssl=1 735w” data-lazy-sizes=”(max-width: 400px) 100vw, 400px” srcset=”data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7″>
<img data-attachment-id="2601" data-permalink="https://www.modernfrugality.com/10-free-activities-for-couples-paying-off-debt/10freeactivities-2/" data-orig-file="https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?fit=735%2C1102&ssl=1" data-orig-size="735,1102" data-comments-opened="1" data-image-meta=""aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"" data-image-title="10 free activities for couples paying off debt" data-image-description="
10 free activities for couples paying off debt
” data-medium-file=”https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?fit=200%2C300&ssl=1″ data-large-file=”https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?fit=400%2C600&ssl=1″ loading=”lazy” data-pin-description=”Are you tired of feeling like you have to stay at home 24/7 while paying off debt? Here are 10 free activities to do with your partner while paying off debt. #debtpayofftips #debtpayoff #howtogetoutofdebt #freecouplesactivities #freedatenightideas #frugaldatenight” data-pin-title=”Free Activities to Live a Little While Paying Off Debt” class=”aligncenter size-large wp-image-2601″ src=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/10-free-activities-for-couples-paying-off-debt.png” alt=”These 10 free activities for couples paying off debt are great! #payoffdebt #frugalfun” width=”400″ height=”600″ srcset=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/10-free-activities-for-couples-paying-off-debt.png 400w, https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?resize=200%2C300&ssl=1 200w, https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?w=735&ssl=1 735w” sizes=”(max-width: 400px) 100vw, 400px” data-recalc-dims=”1″>
<img data-attachment-id="4453" data-permalink="https://www.modernfrugality.com/10-free-activities-for-couples-paying-off-debt/mf-10-free-activities-for-couples-paying-off-debt-to-avoid-boredom/" data-orig-file="https://i1.wp.com/www.modernfrugality.com/wp-content/uploads/2019/02/MF-10-Free-Activities-for-Couples-Paying-off-Debt-to-Avoid-Boredom.jpg?fit=700%2C1350&ssl=1" data-orig-size="700,1350" data-comments-opened="1" data-image-meta=""aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"1"" data-image-title="Free Activities to Live a Little While Paying Off Debt" data-image-description="
Are you tired of feeling like you have to stay at home 24/7 while paying off debt? Here are 10 free activities to do with your partner while paying off debt. #debtpayofftips #debtpayoff #howtogetoutofdebt #freecouplesactivities #freedatenightideas #frugaldatenight
” data-medium-file=”https://i1.wp.com/www.modernfrugality.com/wp-content/uploads/2019/02/MF-10-Free-Activities-for-Couples-Paying-off-Debt-to-Avoid-Boredom.jpg?fit=156%2C300&ssl=1″ data-large-file=”https://i1.wp.com/www.modernfrugality.com/wp-content/uploads/2019/02/MF-10-Free-Activities-for-Couples-Paying-off-Debt-to-Avoid-Boredom.jpg?fit=311%2C600&ssl=1″ loading=”lazy” width=”311″ height=”600″ data-pin-title=”Free Activities to Live a Little While Paying Off Debt” data-pin-description=”Are you tired of feeling like you have to stay at home 24/7 while paying off debt? Here are 10 free activities to do with your partner while paying off debt. #debtpayofftips #debtpayoff #howtogetoutofdebt #freecouplesactivities #freedatenightideas #frugaldatenight” src=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/10-free-activities-for-couples-paying-off-debt.jpg” alt class=”wp-image-4453″ srcset=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/10-free-activities-for-couples-paying-off-debt.jpg 311w, https://i1.wp.com/www.modernfrugality.com/wp-content/uploads/2019/02/MF-10-Free-Activities-for-Couples-Paying-off-Debt-to-Avoid-Boredom.jpg?resize=156%2C300&ssl=1 156w, https://i1.wp.com/www.modernfrugality.com/wp-content/uploads/2019/02/MF-10-Free-Activities-for-Couples-Paying-off-Debt-to-Avoid-Boredom.jpg?w=700&ssl=1 700w” sizes=”(max-width: 311px) 100vw, 311px” data-recalc-dims=”1″>
Jen Smith is a personal finance expert, founder of Modern Frugality and co-host of the Frugal Friends Podcast. Her work has been featured in the Wall Street Journal, Lifehacker, Money Magazine, U.S. News and World Report, Business Insider, and more. She’s passionate about helping people gain control of their spending.
Debt snowball is a debt repayment strategy that can help you to pay off debt, improve your credit score, and make you feel better about your finances. It’s one of the most effective debt payoff strategies and has helped millions of Americans to escape mounting credit card, student loan, and personal loan debt.
In this guide, we’ll look at the basics, presenting you with a debt snowball calculator and some essential information so you can use this method for yourself when paying off debt.
What is the Debt Snowball Method?
Debt snowball is a payoff strategy designed to boost your confidence, reduce your debts, and improve your credit report. The idea is simple: Continue meeting your current monthly payment obligations and put all extra money you have towards the smallest debt. Unlike the debt avalanche method, which focuses on the debt with the highest interest rate, the goal is to focus on the smallest debt, whether that be a car loan, credit card, or student loan.
There are some obvious flaws with this strategy, but there are also some surprising advantages, both of which we’ll discuss below.
How the Debt-Snowball Method Helps You Repay Your Loans
Payoff strategies like debt snowball work by increasing your interaction with your debt, encouraging you to increase your monthly payments, thus reducing the loan term and the total interest.
The reason debt escalates so quickly is that your monthly payment only covers a small percentage of your total balance and most of this is interest. If we use credit cards as an example, the average monthly payment is around 2%. With an APR of 18% on a balance of $10,000, you’re paying $1,800 a year or $150 a month. This means your first month’s balance is $10,150, which in turn means that your monthly payment of around $200 (2%) reduces your balance by just $50. The same happens again the next month, with the interest now calculated against the remaining balance of $9,950.
Every additional payment you make once that 2% has been paid, reduces the principal/balance further. If you pay just $50 more in that first month, you’re repaying twice as much of the principal and next month’s balance will be $9,900. This strategy not only increases the rate at which you pay off the loan, but because the balance is much smaller, the interest payments are also smaller, which means you spend less.
Debt Snowball Calculator
You can use a debt snowball calculator to help you pay off debt, but you don’t need one. A debt snowball calculator will simply tell you how long it takes to clear your debt and which debt is the smallest, but the latter is easy to calculator yourself and the former may do more harm than good.
Simply gather information on all of your debts and then zero-in on the one with the smallest balance. You don’t need to worry about the interest rate or monthly payment—it’s all about the balance. As an example, your list of debts from smallest to largest may look like this:
Type of Debt
Interest
Minimum Monthly Payment
Balance
Credit Card 1
20%
$50
$2,000
Credit Card 2
20%
$200
$10,000
Credit Card 3
16%
$240
$12,000
Car Loan
5%
$400
$20,000
In this example, the first $2,000 debt won’t take very long to clear. And once it does, you have one less debt to worry about; one less monthly payment to make. You can then focus on the next smallest debt and keep repaying them until you’re 100% debt-free.
Keeping Accounts Open
The goal is this strategy is to clear accounts, improve your FICO Score and ensure you remain on-course for complete financial freedom. It’s tempting, therefore, to close accounts as soon as they clear and place a big green tick next to them in your mind. However, doing this could seriously reduce your credit score and undo all your hard work, at least in the short-term.
This is all down to something known as credit utilization, which accounts for close to a third of your FICO Score calculation. Lenders want to know that you’re not credit-hungry and won’t use every cent of credit that’s offered to you. It displays a level of irresponsibility and a lack of control and it’s a major concern. To account for this, the credit utilization aspect of your score compares all your available credit (such as the credit limit on a credit card) to all your used credit (such as the debt on that card). The higher the percentage of used credit is, the more of a negative impact it will have on your total score.
Every time you clear an account, you reduce this ratio by decreasing your debt, but if you then close that account, you’re also reducing your credit.
How to Get the Money You Need
Debt snowball is designed to be simple and easy to implement, but it also relies on you finding additional cash every month to increase your minimum payments. No extra cash means you won’t pay off debt early and this strategy will be a bust.
So, how can you hope to find this extra money?
Sell What You Don’t Need: Most American households accumulate huge amounts of junk over time, from old tech and furniture to clothes, media, ornaments, and more. If it’s gathering dust and doesn’t have a sentimental or collectible value, you don’t need it and can sell it.
Budget: The average household wastes thousands of dollars a year on food (40% of the average grocery shop ends up in the garbage) lottery tickets, cigarettes, and other luxury expenses. If you want to save your way to an easier life then you need to budget.
Ask for a Raise/Promotion: You won’t get it if you don’t ask. If you’ve been at your place of employment for a long time and believe you deserve it, then put your case forward and see how it goes.
Get a Part-Time Job: Have a few extra hours on an evening or a weekend? Look for part-time work that won’t be too taxing and will still allow you to relax and enjoy life. Every cent you earn takes you one step closer to clearing your debts.
Become Part of the Gig Economy: Freelancing has created endless opportunities for writers, designers, artists, coders, and anyone with some time on their hands and a little skill. Check freelancing portals and put those skills to good use generating extra cash.
Cash in Savings and Investments: It’s important to have a rainy-day fund, but there’s no point clinging onto it if you’re standing in the middle of a downpour. The same goes for investments earning a few bucks a year. You’ll spend more on interest payments than you’ll ever make through dividends and savings.
Debt Snowball vs Debt Stacking
There are several strategies for paying off debt, but the most common aredebt snowball and debt avalanche, also known as debt stacking. The debt avalanche method focuses on the debt with the highest interest rate and then works its way down. The principal is the same as the debt snowball method in that you keep meeting your minimum payments and use all extra money to focus on a single debt, but the debt you focus on changes.
You can read our guide to Debt Snowball vs Debt Avalanche to learn more about how these two compare. We also have a complete guide to the Debt Avalanche Method.
When is Debt Snowball the Best Option?
The debt snowball method works well when you have multiple debts of similar interest rates and monthly payments. It also works very well if your costliest debts (in terms of interest) have the smallest balances.
But it’s not all about the size of your debt as this strategy is also very good at boosting your confidence and motivating you. People get stuck in a cycle of debt because they focus on the short-term instead of the long-term. They don’t think, “This $10,000 balance will cost me over $5,000 in total interest” they just think, “This $10,000 debt is only costing me $200 a month.”
If you find yourself rooted in this mindset, then debt snowball might be right for you because it focuses on a long-term goal while also providing you with short-time success. You will see the results happen right in front of your eyes and this could spur you on to continue. This is important, because without that motivation boost and without those visible results, you may start using your additional income to spend on luxuries and not to clear your debts.
When is Debt Snowball the Worst Option?
As discussed under out Debt Snowball Calculator section above, this strategy can ignore high-interest debts in favor of debt with small balances. If your debt is mainly credit card or loan based, this shouldn’t be a major problem. However, if you have a credit card with a massive balance and interest rate, as well as a few small loans and installment plans, it could be.
In this case, you’re allowing your credit card balance to go unchecked while you focus on small interest loans. You will still pay off debt in the long-run, but it will cost you much more than if you were to focus on that credit card debt in the first place.
If your minimum payments are at their biggest with debts that won’t be touched for months or years, maybe it’s not the right strategy for you.
Summary: Is the Debt Snowball Strategy Right For you?
The problem with debt is that we tend to focus on the smaller picture. If we have debts of $30,000 costing $500 a month and generating over $20,000 in total interest, logic dictates that a sudden windfall of $30,000 should be used to clear those debts. It would save $500 a month and $20,000 over the term.
However, the vast majority of debtors would sooner put that money towards a car, home or vacation, seeing the cost of the debt as $500 a month and not $20,000 over several years.
The debt snowball method may not make much financial sense over the long-term, but the same can be said for loans, interest, debt consolidation and everything else that we willingly subject ourselves to. The point is that it creates small, achievable milestones; it makes the impossible possible, and that’s why it still serves a purpose when compared to the avalanche strategy.
With the summer season being well underway and the coolness of fall soon approaching, we could all benefit from some quick and easy financial hacks to guarantee we’re in the best position possible. The heat of the summer and the list of never-ending events can quickly cause us to feel we’re burned out from life’s demands. Grab a nice, cold glass of your favorite summer beverage and take a look at the tips below to recharge your finances.
Set a Cash Budget for Discretionary Expenses
The best way to combat overspending in certain categories such as entertainment, meals or clothes, is to set a cash budget. In life, there are always trade-offs, and this holds just as true with your finances. It’s all about finding a balance between what you want to spend money on, what you need to spend money, and what you can hold off on.
We swipe our debit and credit cards with ease – and new features with our cell phones make it effortless to spend money. When setting your budget or reviewing previous transactions, we often don’t realize how much money is actually flying out of the door. The best way to manage this is to withdraw a designated amount of cash and label each specific category every pay period. Once the cash is gone, it’s gone. This habit can take some time to truly activate, but it forces you to reconsider each purchase – saving you money in the long run.
Create and Stick to a Budget (or whatever name you give it)
I know, you set a budget at the beginning of the year. However, needs and responsibilities change! Life events such as buying a home, marriage, a new bundle of joy or sending a child off to college can quickly add more expenses. Be sure to remove any bills that no longer apply and make adjustments where necessary. This is also a great time to revise or add brand new finance goals during this budget exercise. Don’t let this budget plan collect dust – get into the habit of reviewing your budget and spending habits as often as needed. I recommend downloading Mint to get started on yours!
Evaluate your Current Investments
Are you still on track for retirement? Review and adjust your 401k contributions. In the instance your salary has increased, so should your savings. If you have solicited the help of a financial advisor, schedule a meeting to discuss how you can further maximize your investments and guarantee a better future for your family.
Pay Off Credit Card Debt
Vacations, celebrations, birthdays, and everything in between add up during the summer months. Commit to resolving your credit card balances and create a plan to ensure it happens. Remember, interest can accrue quickly on credit cards so be mindful, but diligent about reducing your credit card usage. List any outstanding credit card amounts and create a tangible plan that will help to get (and keeping them) at a zero balance. Implement a rule – what’s spent during one cycle must be paid off in full. This will help manage debt safely while making you think twice about swiping the plastic.
Create or Update your Will
Death is a topic that many people don’t like to discuss very often. In order to guarantee financial success for those you care about the most while also limiting confusion, a will is necessary. Determine what property you would like to include and appoint an executor to handle your affairs. The passing of a loved one is never easy to handle; however, it removes the chaos that can ensue. Communicate the location of the will to family members or close friends.
Use a Safe Deposit Box for Important Documents
Items such as birth certificates, social security cards, wills, passports, and other pertinent documents should be stored securely in a deposit box. Why is this important? If you start a new job and your identity has to be verified, it could cause some issues if these documents aren’t quickly available. There are costs associated with replacing these items, along with varying timeframes in which you’ll receive them. Save yourself the hassle and make sure your vital records are stored safely.
Review Insurance Coverages
Are you receiving the best possible rate for home and auto insurance? There’s no harm in calling your current insurance companies to see if you qualify for any additional discounts or savings. Other companies can also provide you a quote within minutes to ensure your pricing is comparable.
Maximize Employment Benefits
Have you reviewed your 401k contributions lately? Double-check your contributions and take the time to verify your employers’ match benefits. Also, review any supplemental information to make sure you’re taking advantage of all of their perks. Many employers offer discounts on things ranging from cell phone service to various types of insurances, so review that information regularly.
Automate your Savings
The easiest way to hit your savings goal is to automate as much as possible. Allocate a portion of your paycheck each period to automatically flow to your savings account. That removes one item off of your to-do list that seems to never end. Are you the type that can’t fight the temptation? Open a savings account at another bank location that is not easily accessible and watch your money multiply.
Review of Credit Report
There’s the saying that “cash is king”, however, credit holds the power. Dedicate some time to review your credit report provided by any of the three credit bureaus to ensure there are no errors. In the instance something appears incorrect, you can follow up with the credit bureau from which the report was provided and follow the actions necessary until the issue is resolved. You can check out your credit score instantly with Turbo.
Unsubscribe from Sales Emails
It’s impossible for us to patronize and take advantage of every sale that happens at our favorite stores. Remove the pressure and make the decision to declutter your email inbox. The less you see, essentially the less you spend. Achieving your financial goals are much more important than running to your local store or shopping online each time you’re notified. Remove the stress and hassle by opting out of sale notifications.
Choose all or a few of the tips listed to make the best use of National Financial Awareness Day!
If these budgeting pitfalls sound familiar, there are steps you can take to get your finances back on track.
If you’ve blown your budget before, you might end up thinking that budgeting just isn’t for you. There are common budgeting mistakes that could impact your financial progress, sure. But many have simpler fixes than you think.
Before jumping ship at the first sign of difficulty, know that creating a budget—and sticking to it—is a skill. And all skills take time and effort to master.
What are some common budgeting mistakes? To get on the right track, review these common budgeting pitfalls and budgeting hacks:
1. You’re not motivated
If you’re considering budgeting mistakes to avoid, know that you’re less likely to stick to a budget if you don’t have clearly defined financial goals. You’re more likely to commit to your budget and be disciplined in your spending if you’re working toward a specific milestone.
“I initially created a budget because everyone said it was the responsible thing to do,” says Chonce Maddox, the personal finance writer for a blog that focuses on eliminating debt and budgeting. “After a while, I started to resent my budget because it felt like it was keeping me from doing the things I wanted to do.”
Her “aha” moment came when she realized she actually did have motivation to start budgeting: She wanted to get out of debt. “At this point, I realized I wanted to budget, and it helped me be consistent with planning my spending,” Maddox says. She ended up using a budget to pay off more than $30,000 in student loans in less than three years.
Elle Martinez, the founder of a relationship-focused website and podcast, had a different money motivation with her significant other: to live off one income and save for big financial milestones with the other. Any essential expenses (think housing and food) would be covered by their first income, while the second would go toward traveling, paying off debt and starting a business. “This goal has been a huge factor in staying consistent with our budgeting routine,” Martinez says.
Fix: Pick goals that will inspire you
Do you want to pay off those student loans once and for all? Save for a down payment for your dream home? Travel around the world? To avoid this common budgeting mistake, write down the goals that make you tick and how much you’ll need to save to accomplish them. When you’re tempted to stray from your budget, review your goals for the motivation to stay on course.
You earned it. Now earn more with it.
Online savings with no minimum balance.
Start Saving
Online Savings
Discover Bank, Member FDIC
2. Your budget is not realistic
One of the biggest budgeting mistakes to avoid is being unrealistic about your spending. Under-budgeting in some or all of your spending categories may leave you with less money than you need to allocate toward your needs. If you chronically under-budget and then spend more than you intend, you could get discouraged with budgeting altogether.
Maddox admits that she encountered this budgeting pitfall and failed to be realistic when she started to budget. “I was comparing myself to others and creating a ‘realistic’ budget based off of their lives,” she says. “That fell through quickly because I wasn’t being honest with myself about my situation, my spending habits and my own goals.”
Fix: Track, then adjust
If this budgeting pitfall is holding you back, consider using a budgeting and spending app to help you aggregate your spending across bank accounts and credit cards. You can connect your financial accounts to a budgeting app and get regular reports of your spending in different categories. You can then begin to adjust your budget and cut back in categories as it realistically makes sense for your lifestyle.
Maddox’s process of cutting back was simple after she began tracking her spending. “I realized that I couldn’t spend so much on things like going out to eat, so I learned to cut back by cooking at home,” she says. “I do like dining out at times, but I had to keep it to a minimum.”
3. You don’t account for every expense
Leaving things out of your budget is another budgeting mistake to avoid. Let’s say you have a family reunion coming up. In the past, maybe you relied on “winging it” when it came to paying for one-off costs like transportation and accommodations. But without incorporating these costs into your spending plan, you risk having to dip into other budget categories (goodbye, streaming services) or falling short on other goals.
Since your spending habits will likely change based on different life circumstances, you’ll need to regularly review and adjust your plan to avoid this budgeting pitfall.
Fix: Review and revise your budget
Martinez, the founder of the relationship-focused website and podcast, has a specific way of handling budget revisions with her husband to avoid this common budgeting mistake. “We have ‘money dates’ where we discuss our spending plan and any changes we might need to make to it,” she says. “Most couples forget that yes, we do have steady expenses, but we also have things that come up—trips, weddings, school, etc.”
Rather than omitting special events or irregular occurrences in their budget, Martinez and her husband make sure to capture every possible expense related to these spending “anomalies” when they have their budget reviews. “Once we do that, we can make adjustments in other categories or in other months to make sure the money is there and ready to go when we need it,” she says.
To avoid this budgeting pitfall, take time to figure out any future expenses that don’t fall into your regular spending patterns, and decide how much you need to save for them ahead of time. It can take time and practice to anticipate every expense imaginable, but it will be worth it to keep your budget as accurate as possible. You can also start an emergency fund to help cover unexpected expenses.
4. Your budget is too restricting
While it’s helpful to have an accurate budget, having one that is too restricting is actually a budgeting mistake to avoid. It’s possible that your willpower will wane as you try to cut things out. There’s even such a thing as “frugal fatigue.” Just like you can’t diet restrictively or engage in other extreme activities forever, you can’t expect to stick to a hyper-strict budget long term without burning out. Long periods of restriction can be both demotivating and tiring.
After a while, people tend to bend under the pressure of trying to meet perfection. If you remain extremely strict with your spending, you could go on a spending binge under the pressure.
Fix: Celebrate financial milestones
To combat frugal fatigue and this common budgeting mistake, be sure to celebrate what you’ve accomplished. Of course, you don’t want to indulge in anything so extreme that it sets you back financially, but you should make room in your budget to recognize financial progress and reward yourself accordingly. It could be something as simple as buying your favorite ice cream after reaching a saving milestone.
Articles may contain information from third-parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.
April 4, 2019Posted By: growth-rapidly Tag: Emergency Fund
You never know what life will bring. You can unexpectedly lose your job. A medical emergency can present itself, or you may have unexpected home repairs. So, as financial advisors would say, having an emergency fund to cover these ’emergencies’ makes good financial sense.
An emergency fund then is a stash a money you save somewhere, usually in a savings account, to cover some of those unexpected surprises. These ’emergencies’ or unexpected events can be costly and they can threaten your financial well being when presented with them. It is therefore important to create one, know what a good emergency fund amount is, where you should keep your emergency savings, and how much you should save in your emergency fund.
Ready to get started? Start your emergency fund today with CIT Bank.
1. Where to put your emergency fund?
High yield savings accounts or money market accounts are a great choice to put your emergency fund for two main reasons. First, they are safe. The point of having an emergency fund is to have that money available to you when an emergency arises. In other words, you want to make sure that your money is there when you need it.
The worst thing you can do to your emergency fund is to expose it in the stock market. The stock market is so volatile that you can lose all of your money in a matter of minutes.
So money placed in high yield savings accounts are safe because they’re not exposed to the stock market and they are insured by up to $250,000, making them some of the best places to stash your emergency fund.
Second, they are accessible. They are liquid, and can easily get your cash within 24 hours, if not sooner.
Related: The Best 5 Places to Keep Your Savings
2. Emergency fund amount.
How much should you have in your emergency fund?
Your emergency fund amount depends largely on your unique circumstances. But financial experts recommend to have at least 3 to 6 months’ worth of living expenses. So if your monthly expenses is $2000, your emergency fund amount should be at least $6,000.
3. Your emergency savings choice.
CIT Bank 2.4% APY Savings Builder High Yield Savings Account is a great option for your emergency fund. It offers a very high APY 2.45%, multiple times better than what a typical traditional savings account is offering.
Learn more about CIT Bank here.
4. How to Start an emergency savings fund
Starting an emergency fund is easy. Open a savings account to use strictly for unexpected expenses and start stashing money away every week, every month, or every paycheck. Even if you think you don’t have enough money to save, save smaller amounts in the beginning and increase it whenever possible.
5. Reasons why you should have an emergency fund.
If you don’t have an emergency fund, you may find yourself in hot water when an emergency arises.
Apply for a loan. If you don’t have a safety net, you may be forced to apply for a personal loan. And a personal loan can put you into more debt. You will have to work hard to repay the principal, plus interest. And if you can’t pay your loan, a judgment can be entered against you.
Take out a 401k loan. You’re allowed to borrow against your retirement account such as a 401k plan. However, just as any other loan, you have to repay it back according to the rules set by your account, or else you will get hit with a penalty. Also, taking money out of your retirement account prevents potential growth of your account.
Selling stocks, rental properties. You may have to sell your stocks or real estate investments in case of emergency. However, that will cost you a lot of money like transaction cost, taxes, etc.
Learn more:
The 5 Best Places to Keep Your Savings
Top 5 Reasons Your’re Not Saving Money
Money Saving Tips: 6 Secrets to Saving Money
4 Reasons CIT Bank Can Maximize Your Savings
Working With The Right Financial Advisors.
You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
This post may contain affiliate links. Please read my disclosure for more information.
I’m on a financial high going into November. It’s my favorite time of year; the weather is crisp, people are happier, and my favorite holiday, Black Friday, is right around the corner. I’m on cloud 9.
And I have one more thing making my money-saving heart flutter (or palpitate, I can’t tell the difference lately.) My student loan is now 4 digits. I’m finally under 10 grand! I didn’t see this day coming anytime in my 20’s and it’s here. You guys, hard work and perseverance pay off! And I’m really excited to have you to share this moment with.
So in November we decided to kick it into HIGH gear to get my student loan completely paid off by the end of the year. This was our original goal but we had a setback in April that made us plan to have it paid off in January. But thanks to a lot of overtime and the fact that I get paid on Wednesdays (and there are 5 in Nov this year!) we decided to get a little crazy.
Also Read: October 2016 Budget
In October you’ll remember we budgeted $3800 for student loan payment and we ended paying $4070 (Again thanks to Travis’ overtime from volunteering to pick up shifts.) I was on a shopping ban which basically meant no impulse buys. I worked from Starbucks once a week because I had a gift card and I bought shampoo and a shirt for Halloween (because these were at Goodwill and look how cute we are!)
We did pretty good sticking to the line items but went over in restaurants this month. Fitting since I just wrote a post about how much you can make by eating out less. But we spent less in gas than we budgeted so it evened out by the end.
Our Real Budget
We used EveryDollar to copy October’s [revised] budget and made a few adjustments. We cut our lifestyle budget almost in half this month and all the extra money we’re making is going to our $5,000 debt payment. Yes, you read right, $5,000.
I’m doing another month of the shopping ban because I used my personal money on some blog related items in September. You have to spend money to make money, especially in a competitive space like the Internet. But so far those investments have been paying off and I’ll definitely tell you about them someday.
I also wanted to point out our “giving” category. I’ve had surprisingly mixed responses to this one. We decided at the beginning of our debt freedom journey on a consistent $500 each month. This was definitely a compromise we had to make early on and once we found a number we were both comfortable with we just stuck with it.
Some very generous people can’t see giving less than 10% even while going into debt and some people won’t give anything while they’re paying off debt.
I give now because my end goal is to be outrageously generous. Giving is a gift not only to those who receive it but to me too! I don’t feel guilty about feeling real good when I give. Ultimately though, it’s whatever helps you sleep at night.
I run half marathons and nowhere along the race do I wish I’d trained less.
Giving now is like my training to give more later. And that’s how I justify spending more right now on giving than on my lifestyle. If you’re interested in this subject I highly recommend Generous Justice by Timothy Keller. A great read on why social justice is important and how you can be generous most effectively.
<img data-attachment-id="4828" data-permalink="https://www.modernfrugality.com/november-2016-budget/mf-how-we-paid-off-over-4000-of-debt-in-october/" data-orig-file="https://i2.wp.com/www.modernfrugality.com/wp-content/uploads/2016/11/MF-How-We-Paid-Off-Over-4000-of-Debt-in-October.jpg?fit=600%2C900&ssl=1" data-orig-size="600,900" data-comments-opened="1" data-image-meta=""aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"1"" data-image-title="How to pay off a chunk of debt in a short time" data-image-description="
Tips to help you pay off a chunk of your massive debt quickly. #budgetingtips #budgetinghacks #debtpayofftips #debtpayoffhacks #budgetingtricks #payingoffdebtquickly
” data-medium-file=”https://i2.wp.com/www.modernfrugality.com/wp-content/uploads/2016/11/MF-How-We-Paid-Off-Over-4000-of-Debt-in-October.jpg?fit=200%2C300&ssl=1″ data-large-file=”https://i2.wp.com/www.modernfrugality.com/wp-content/uploads/2016/11/MF-How-We-Paid-Off-Over-4000-of-Debt-in-October.jpg?fit=400%2C600&ssl=1″ loading=”lazy” width=”400″ height=”600″ data-pin-title=”How to pay off a chunk of debt in a short time” data-pin-description=”Tips to help you pay off a chunk of your massive debt quickly. #budgetingtips #budgetinghacks #debtpayofftips #debtpayoffhacks #budgetingtricks #payingoffdebtquickly” src=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/november-2016-budget-2.jpg” alt class=”wp-image-4828″ srcset=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/november-2016-budget-2.jpg 400w, https://i2.wp.com/www.modernfrugality.com/wp-content/uploads/2016/11/MF-How-We-Paid-Off-Over-4000-of-Debt-in-October.jpg?resize=200%2C300&ssl=1 200w, https://i2.wp.com/www.modernfrugality.com/wp-content/uploads/2016/11/MF-How-We-Paid-Off-Over-4000-of-Debt-in-October.jpg?w=600&ssl=1 600w” sizes=”(max-width: 400px) 100vw, 400px” data-recalc-dims=”1″>
Jen Smith is a personal finance expert, founder of Modern Frugality and co-host of the Frugal Friends Podcast. Her work has been featured in the Wall Street Journal, Lifehacker, Money Magazine, U.S. News and World Report, Business Insider, and more. She’s passionate about helping people gain control of their spending.
Love it or hate it, debt is an integral part of modern life in the United States. And, when you think about it, debt in itself really isn’t a bad thing. Neither are credit cards or loans.
They only become a potentially negative thing when they’re misused or mismanaged. And once they get out of control, they can head down a long spiral and bring you down with them.
The wise use of debt — whether it’s revolving (like credit cards and lines of credit) or fixed (like a secured car loan or mortgage) — is like the skillful use of the right tool at the right time for the right purpose.
So, it’s important to realize that avoiding debt isn’t really the answer. In fact, trying to go through life without incurring any debt or using credit can be unnecessarily difficult and troublesome. It can even impact non-credit-related situations like renting an apartment. The skill Americans truly need to focus on developing is how to manage debt effectively.
Following are 7 tips to help you manage your debt more effectively:
1. Think Before You Sign
Banks, retailers, and many other organizations make credit very easy to obtain if you have a good credit score.
Nearly every department store or specialty shop has its own credit card that you can sign up for instantly while you’re making a purchase, and it often comes with the enticement of an immediate discount off your purchase.
Even if your credit score isn’t very good, there are many lenders who are willing to offer credit at high interest rates, from 25% APR credit cards to 33% payday loans.
The point to keep in mind is that lenders and retailers want you to spend money with them. They’re not concerned in the least with what more debt is going to do to your budget, your lifestyle, or your future.
So, the first tip is simple:
2. Avoid Applying for Credit Impulsively
Don’t sign up for additional credit as an impulse buy or based on desperation. It’s always going to be a bad idea under those circumstances.
However, if you frequent a certain store and routinely spend money there anyway, and you’re confident you can be responsible with a new credit line, it may be beneficial to sign up. The point is, that needs to be a conscious decision, not a second thought for the sake of a one-time 15% discount.
3. Educate Yourself About Your Credit Score
Your credit score is a 3-digit number calculated by credit reporting agencies based on a number of factors, many of which the average American couldn’t even name. While it may seem somewhat arbitrary, that doesn’t change the fact that that 3-digit number can determine:
Whether you qualify for a 0% introductory interest rate or have to settle for a rate that fluctuates at “prime plus 23%”.
Whether you’re considered financially trustworthy or not, and therefore whether a landlord will rent to you or certain employers will hire you.
Whether or not you can afford to buy your own house one day.
And much more…
There are numerous situations that are partially or fully out of your control that can result in damage to your credit score. However, much of the damage done could be avoided if consumers simply understood the basic factors that affect their credit score. Then, they could actively work to improve a bad score or maintain a good one.
So, our second tip is: Seek out reliable information about managing debt effectively and educate yourself, so you’re equipped to take strategic action.
4. Assess Your Current Debt Situation
As you learn more about managing debt and understanding your credit score, you’ll begin learning terms like credit utilization ratio and debt-to-income (DTI) ratio. These simple calculations have a huge impact on your score, and on how willing lenders may be to offer you favorable terms or to offer any credit at all.
Credit utilization ratio is the percentage of your currently available credit that you’re already using. (A simple example: If you own one credit card with a $1,000 credit limit, and it has a current balance of $200, you have a credit utilization ratio of 20%.)
Debt-to-income ratio is the percentage of your monthly or annual income that goes toward paying off debt you’ve already incurred. (Another simple example: If you earn $6,000 per month and the combined total of your existing car loan, mortgage, and minimum credit card payments amount to $2,000, you have a debt-to-income ratio of 33%.)
There are other important factors as well, but these two figures form a significant part of the calculation when determining your credit score. If they’re going to offer you the best possible terms, lenders want to be relatively confident you’re able to easily afford to pay for the credit they’re offering you.
They can make that decision based, in part, on how much of your current reliable income is already going toward other debt you’ve incurred in the past, as well as how much of your available credit you’ve taken advantage of thus far.
5. Keep Your Credit Utilization Ratio Low
If you already have four credit cards and they’re all maxed out, when you apply for a new credit card, it’s a pretty good bet you’re going to max that one out too. You already have a 100% credit utilization ratio.
This shows you’re probably not great at managing debt, and there’s a good chance you’ll eventually overdraw your ability to pay. So, the credit card company may decline your application, or they may offer a lower credit limit and/or a higher interest rate to help mitigate their risk.
Of course, if your income is such that, even with all those maxed-out cards, you’re having no trouble at all making the monthly payments, (your DTI ratio is still low,) they may not worry about your utilization at all. And that’s where debt tends to snowball quickly and dangerously.
To sum up, here’s the tip: To improve your credit score and make sure you’re managing your debt effectively, you should shoot to maintain a credit utilization ratio and a DTI ratio of no more than 30%. In other words, you’re taking advantage of available credit, but you’re coming nowhere near the maximum you can afford to spend on it.
6. Make and Keep a Budget
This one requires very little explanation. Everyone realizes that creating a budget is necessary if you’re going to manage your spending. The more formal your budget, the better.
If you’re currently in good shape, your credit score is high and your debt is low, A strategic budget can help keep it that way while improving important tools like emergency savings and investments.
If you’re on the other end of the spectrum, your credit score is low and/or your debt is getting out of control. A budget can be the lifeline you need to slowly but surely pull yourself out of that downward spiral one penny at a time.
The formula is very simple: Income > Expenses.
Of course, putting it into practice is a little more challenging. There are plenty of tools available, from a pile of envelopes with cash set aside for various expenses to smartphone apps, but the real value of budgeting depends on your own self-discipline and willingness to stick to the plan you create.
So, for this tip: Make a budget that consistently keeps your income above your expenses, and do everything you possibly can to stick to it.
7. Get Professional Help with Credit Repair If It’s Needed
While all of the above tips are self-serve actions you can take right now to make a difference in your debt management, many Americans are already in a situation where it may not be possible to turn it around completely on their own.
For instance, if the loss of a job, divorce, military deployment, or other major life events caused you to unexpectedly rely on credit cards for months, you may be in a desperate situation that isn’t really even your fault.
Likewise, if you’re like so many Americans who grew up, finished school, and left home without ever learning the basics of financial responsibility, you may have gotten in over your head in debt without even realizing that was possible.
No matter what the reason is for your current situation, you don’t have to go it alone.
Hire a Credit Repair Company
Get in touch with a reputable credit repair agency and discuss your situation with a professional who can help. For a small fee, they can take the reins on your situation by:
Investigating your credit report to confirm its accuracy and completeness
Working with creditors on your behalf to negotiate payment plans or better terms
Disputing errors and eliminating inconsistencies on your report
Setting up a realistic budget and debt reduction plan
Guiding you through the challenges that will inevitably rise as you resolve your situation
So, the final tip is this: If you need help getting out of snowballing debt and getting yourself to the point that you can effectively manage it going forward, don’t hesitate. Get the help you need.
In modern America, completely avoiding debt is not only difficult, it’s potentially harmful. However, incurring debt without managing it effectively can be even worse. Follow the tips above, and you’re sure to get a solid handle on debt and use it skillfully.
Side hustling is a way of life for more than 44 million Americans. Here’s why.
The phrase “side hustle” has gained popularity over the years. What started as a term referring to making a little extra money outside of a day job has turned into a way of life for many.
According to a 2017 study from Bankrate.com, more than 44 million Americans have a side hustle, which can range from working on freelance projects after hours to driving for ride-sharing companies on the weekends. Of the 86 percent of side hustlers who earn extra money from a side job every month, 36 percent make more than $500, the study found. Making ends meet was the main motivation for the majority of side hustlers and may be one of the key reasons you need a side hustle, too.
However, side jobs aren’t just for covering expenses. There are several reasons why you should start a side hustle, even if you can live comfortably off of your primary income.
Here are four things to consider as you evaluate your primary job and the prospect of side hustling:
1. Having multiple sources of income is empowering
Nick Loper, creator of the Side Hustle Nation podcast, spends his time interviewing people who earn money outside of their day jobs. His aim, in part, is to show his 60,000-plus followers that there are many ways to make time for a side hustle and numerous reasons why you should start a side hustle.
“Of course, making extra money never goes out of style, and that’s probably what draws most people to create a side hustle,” Loper says. “Other benefits might include learning or practicing new skills, exploring a passion of yours or just empowering yourself to find you have economic value outside of your day job or paycheck.”
When asked about some of the successes his podcast guests have experienced, Loper named several: A man who went from earning $30,000 annually working for a newspaper to $30,000 in a day as a freelance photographer, a man who started a multimillion-dollar company selling used textbooks and a woman who earns up to $5,000 a month teaching people how to bake bread.
Loper believes so many people are starting to focus on increasing their earning potential outside of their primary jobs because multiple sources of income can allow you to be more self-reliant. This may be a reason you need a side hustle.
2. You can use the extra money to pay off debt
Paying off debt is, for many people, among the top reasons you need a side hustle. If you’re paying off debt and don’t feel like you’re making any headway, you may benefit from the extra money you can make with a side hustle.
That’s what Gerald Zingraf decided to do when he was looking at $85,000 worth of student loans. Zingraf, 29, is a product manager for a technology company based in Arlington, Virginia. Although he had always made good money, it wasn’t enough to pay down his debt, cover his living expenses and reach his goal of becoming financially independent by 35. He ran the numbers and they didn’t lie—he needed to make more money.
“I was going to be paying student loans for a long time unless I could supplement my income somehow,” he says.
So between 2015 and 2017, he started not just one, but three companies on the side of his day job. His companies include two e-commerce sites—one that sells healthy office supplies such as standing desks and another that sells baby products. His third company is a subscription box service that provides the “ingredients” (not always food, by the way) for creative date nights for couples. Thanks to these companies, Zingraf was able to pay off his student loans in three years.
Assessing your debt and your financial plan to pay it off could become a reason you need a side hustle.
“It doesn’t take a lot of time to build a side gig. It’s like getting in shape. You don’t go to the gym for eight hours a day a couple of times and expect to see results. Instead, you commit 30 minutes a day, five days a week, for a few months.”
3. You can use the extra money to build wealth
If you’re not working to pay off debt, then you may want to find ways to make time for a side hustle simply so you can build wealth faster.
Whether it’s boosting your savings for emergencies or maxing out investment accounts, making extra money can help you reach those financial goals much quicker than if you rely only on your primary career.
This is exactly what Zingraf does with his side companies. What began as a way to make extra money to pay off debt has turned into a vehicle for him to reach financial independence in his 30s, where he’ll have enough income to pay his living expenses for the rest of his life without having to work full time. Zingraf is on track to reach his goal of financial independence in six years by the age 35.
4. It could turn into a job you love (if that’s what you want)
If you’re looking for reasons you need a side hustle, the internet is full of stories of individuals who started a business on the side because they were passionate about something and then it turned into their full-time job. If making money doing something you love isn’t one of the best reasons why you should start a side hustle, what is?
Chenell Tull, founder of Hustle to Startup, did just that after working for AAA’s e-business department for seven years as a Google Ads and SEO specialist. She had helped her stepfather with his online presence for a marketing company he’d started and shared the experience with her networking group. This helped her secure another client, and soon she was working with three or four clients on the side of her day job.
“I decided I loved this so much that I wanted to leave my day job,” Tull says. “I worked to save up eight months of expenses, which took about one-and-a-half-years.” In June of 2017, Tull quit her job to focus on her business full time.
Loper also turned multiple side hustles into his full-time career. To make extra money, he started his first side hustle in 2006—a comparison shopping site for footwear. He went full time with that project in 2008. In 2013, Loper started the Side Hustle Nation podcast, which became his main focus one year later, and by 2017, he said he was earning $15,000 a month.
Does your side gig have to turn into your full-time job? Definitely not. Many, like Zingraf, choose to keep their day jobs and continue building businesses on the side. The route you decide to take depends on your goals and interests.
Making the time to side hustle
Determining why you should start a side hustle is one thing. Finding the time to actually work on your side hustle is another thing entirely.
Thinking about your side hustle inspiration is a good place to start. Are you looking for more financial security? Trying to pay off debt? Build wealth? Once you have the answer, it becomes easier to work on your side gig in your free time. Tull, who believes if you value your side gig it will be easier to find ways to make time for a side hustle, used early morning, nights, weekends and even her commute to work.
If you’re looking for ways to make time for a side hustle, you may actually find that you have more free time than you think. Zingraf suggests that you audit yourself by spending a week recording what you do in 15-minute chunks.
“I bet that there will be at least 20 hours wasted on fruitless tasks like Netflix, Facebook and games on your phone,” he says. Even if you have excellent time management skills, you may still uncover free time you didn’t know you had and ways to make time for a side hustle.
More than 44 million Americans have a side hustle.
Zingraf also shares a little-known secret to successful side hustling. “It doesn’t take a lot of time to build a side gig,” he says. “It’s like getting in shape. You don’t go to the gym for eight hours a day a couple of times and expect to see results. Instead, you commit 30 minutes a day, five days a week, for a few months.”
This accumulation of small wins over a period of time, not a massive time dump, is essential, he says. That’s why he suggests side hustlers commit to working one hour a day, five days a week, for the next three months.
“Find one thing to go all out on during that time,” Zingraf says, “and don’t get distracted by other shiny objects.”
