The alarming rise of interest rates and the changes to tax regulations can be causing you to accrue more debt over time. Reassessing your finances is certainly the prudent strategy, and a wise one at that. Your finances should always be in a state of tweaking and monitoring. In particular, revisit your plans to pay off debt, including unsecured debt. If your balances have been rising over the last year or two, maintaining healthy low limits can do wonders for your stress and anxiety levels heading into a slowdown. Consumers with large amounts of debt are oftentimes trying to balance multiple credit accounts. In fact, according to a report by Nerd Wallet, the median household with credit card debt had an outstanding balance of close to $16,000. Those with car loans had debt of over $25,000, and those with mortgages carried debt of upwards of $170,000.
While your personal situation might not fit these statistics exactly, it makes fiscal sense to align your debt pay-off plan according to the new tax regulations and rising interest rates in order to repay the more expensive ones faster. Calculations could vary, especially when you’re comparing the costs of different kinds of debt.
New Changes
The Federal Reserve has been gradually hiking up the federal funds rate, and is anticipated to make three more increases before the year ends. Even the smallest uptick in interest rate can directly and indirectly affect consumer debt, particularly in variable rate loans and credit cards. Then there is the new tax regulation, which alters what debt products can be deducted. For instance, the interest paid on home equity mortgages can no longer be deducted. Furthermore, the cap on debt for mortgage interest deduction has been reduced to $750,000.
Tips on Paying Down Credit Card Balances
Figure out how much your total balance is. Take note of the interest rates from your recent credit card and mortgage records. If you have multiple lines of debt, run the numbers to see what pay-off plan best suits you. Two of the most common methods of repaying debt are the debt avalanche and debt snowball methods. Regardless of the one you pick, you’ll want to allocate the minimum amount due on every credit card and mortgage.
With an avalanche payoff approach, you rank your debt sources from those bearing the highest interest rates to the ones that have the lowest. Using this approach, you can pay down debt that accumulates the most in interest first thus saving you cash. On the other hand, a snowball approach pays off smaller debts first, and then moves on to large ones. Each debt paid results in gained momentum and a motivation boost to keep knocking out your debt.
Another debt repayment plan to consider is consolidation. Debt consolidation can help you restructure your loan with a new set of terms and conditions that are more favorable and that make it easier and faster for you to repay the full amount. That being said, be sure to structure a consolidation plan wherein the monthly premiums are well within your budget. Personal loans online are a great way to accomplish consolidation. Rounding up all of your high interest credit card debt (if you can) into a 10% personal loan with fixed payments makes for a much faster repayment period and can potentially save a ton of cash with the interest rate reduction. Going from 25% interest to 10% is a huge deal.
Last but certainly not least, reassess your spending habits. Poor spending habits and the lack of a solid budget plan can cause you to accumulate debt in the future again. Money has always has a tendency to leave. Money does not naturally stay. If you want assistance, you can work with a financial advisor or a non-profit credit counselor to help come up with a realistic budget plan that fits you.
Final Thoughts
Make the effort to revisit your budget and personal finances at least once a year. Tax policies and interest rates are sure to change over the next several months. Furthermore, your financial circumstances may be in a completely different state a year from now. Eliminating existing debt isn’t rocket science; neither is avoiding it in the future. With the tips aforementioned in this article, you can secure your financial future without having to make any drastic changes in your lifestyle.
