How to achieve financial freedom and pay off debt
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Debt can be overwhelming, especially if it’s in the double or triple digits. Just ask Tiffany “The Budgetnista” Aliche who was in debt of around $ 300,000 after the last recession.
“The first step is really to forgive yourself, because almost everyone who has a lot of debt is already fighting. We underestimate the importance of the emotional component of debt. It weighs a heavy burden, ”says Aliche.
After the latest recession, Aliche racked up triple-digit debt from a $ 220,000 mortgage, $ 52,000 in student loans and $ 35,000 in credit card. Even though she didn’t pay her mortgage and foreclosed on the house, she paid off her student loans and credit card debt in full.
While there is no better way to fight debt, there are some guidelines you can follow to make paying off debt less expensive.
Aliche considers that the biggest mistake people make is obsessing over bad debt, like student loans, because they usually have single-digit interest rates. In fact, federal student loan interest rates are 2.75% for undergraduates for the 2020-2021 school year and unsubsidized graduate student loans are a little over 4.30%. These rates are significantly lower than the double-digit average 15.78% APR credit card.
“Focus on this credit card debt. It’s the one that costs you an arm, a leg, a toe and a foot, ”says Aliche.
She recommends that you be aggressive with your double-digit credit card debt because it is so expensive. Then once you’ve paid off your card debt and hit single digit debt like student loans divide your money between saving, earning / investing, and paying off debt.
While it may seem odd not to focus on paying off 100% debt, Aliche urges people to take the big picture: “ a objective, not the goal, ”she said. “the the goal is financial freedom. “
For Aliche, financial freedom was about looking into her business, The Budgetnista, so that she can increase her wealth while making regular payments for her student loans. After all, Aliche says being debt free doesn’t equate to wealth.
“If you just focus on getting out of debt, that’s all you get. If you focus on learning how to grow wealth, you get that freedom and that money, ”says Aliche.
There are many ways to pay off debt, but no one answer. Here are a few options that might be right for you.
Use a balance transfer credit card
Make a balance transfer can help you move debt from a high interest card to a card with an introduction 0% APR period of up to 20 months. Balance Transfer Credit Cards, as the American bank Visa® Platinum card, allows you to save on interest payments and use what you would have paid in interest to pay off your debt.
Be aware that good or excellent credit (a FICO score of 670 and above) is often required for a balance transfer card, and lenders set limits on the amount of debt you can transfer. Also, many balance transfers are hard to come by right now as lenders try to minimize the amount of debt and the risk they take.
Consolidate your debts with a personal loan
Personal loans are a good alternative to balance transfers if you have significant debt that won’t be transferable to a credit card. With a personal loan, you receive a fixed amount that you can use to pay off your cards.
You will repay it over a period of approximately 12 to 72 months, and at a fixed interest rate (currently, the average for a 24-month loan is 9.50%). This can help you consolidate your debts spread across multiple credit cards.
However, Aliche cautions that studies have shown that people who pay off their credit card debt with a personal loan often end up overspending on their card. She recommends that you cut out your cards to avoid falling into this pitfall.
Borrow money from family
If you have bad credit (scores below 580) or just having a hard time getting approved for a new one or an affordable financial product, you may want to consider applying for a loan from a family member or close friend. This option is not possible for everyone, but may be an alternative for you.
You can save money on interest by borrowing money from a loved one. Before accepting money, make a repayment plan and stick to it so you don’t risk damaging your relationship.
Since balance transfer offers are currently hard to find and as lenders make it harder to access low-interest financial products, you should consider other ways to increase your income.
“These days, I feel like people really have to be open to pushing,” says Aliche. “Not everyone is going to start a business, but ask yourself, ‘Are there ways to monetize some of my skills? Are there things I can do to generate income? “
For example, Aliche was making about $ 5,000 to $ 6,000 more per year from tutoring and babysitting when she taught in kindergarten. She explains that a secondary fuss can be a temporary way to earn extra income that can help you pay off your debt faster.
Additionally, if your business is doing well, you may want to consider asking for a raise or re-entering the workforce to negotiate a higher salary elsewhere. Try to use your best judgment before doing either so as not to put your current job at risk.
It’s easy to pull yourself together and hang on to how much debt you have. But Aliche encourages you to remember that you are not the only one in debt.
“There are people who make a ton of money and have a ton of debt. There are people who make a little money and have a ton of debt, ”she says. “What you are going through is something that millions of people are going through. Focus on the solution, not on what you did wrong. “
If you find yourself in debt, take a moment to think about what caused it, then start working to pay it off.
The US Bank Visa® Platinum card information was independently collected by CNBC and was not reviewed or provided by the issuer prior to publication.
Editorial note: The opinions, analyzes, criticisms or recommendations expressed in this article are those of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.