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There’s no shortage of debt advice out there.
Everywhere you look someone is saying something about how to get out of debt and save money.
The problem? The advice varies widely and some of it is well, is not very sound advice as all.
How do you tell the difference between the good and bad? Who should you listen to and who should you ignore?
I’m here to break it down and point you in the right direction.
Table of Contents
Which Debt Advice Should You Trust?
A Must Have: The Emergency Fund
Anyone who states you don’t need an emergency fund is a fraud.
An emergency fund is the key to your financial freedom and is the most significant resource you can establish if you want to break out of the debt cycle.
This fund is for non-monthly, periodic expenses that come up like your car needs a repair or the water heater blows.
These types of life circumstances are bound to happen, and when you can go to your emergency fund to cover the expense instead of using a credit card to pay for it, you’re breaking the debt cycle.
If you’re just starting out, I recommend saving $2000 for emergencies. Most situations can be handled with that amount of money.
Save a little each month while you pay off your debt.
Once you that amount saved, continue saving until you have three to six months’ worth of your normal regular expenses covered.
That way, if something happens like you lose your job or fall ill, you’ll have enough to deal with it without taking on any more debt.
Snowball or Avalanche?
Do you pay off your debt using the avalanche method or snowball method?
There are basically two schools of thought on this issue.
Some believe in using the snowball method which has a tendency to provide more motivation because you’re paying off the smallest bill first and therefore getting rewarded by paying off a credit card quicker.
The avalanche method saves you more money because you’re paying off your most expensive debt with the highest interest rate first.
Personally, I used the snowball method because I desperately needed the motivation.
Ultimately you need to decide between the two.
Both work. Both will have you paying off your debt.
But which one you chose depends on whether you need the motivation or if saving more money over the course of paying off the debt is more important to you.
Develop a Spending Plan
No matter whether you’re struggling to pay off credit card debt, student loans or just barely squeaking by and desperately need to get your budget under control, you’ll need a plan.
Call it a budget, spending plan or your personal way to manage money. I don’t care.
All that matters is you figure out what’s coming in and going out each month and manage your funds accordingly.
It’s almost near impossible to pay off debt, any kind of debt and stop incurring more debt if you don’t have a plan of attack. Your spending plan does that and more.
Once you’ve got it nailed down converting to cash and refraining altogether from using your credit cards will have you making significant progress towards your goals.
Credit Cards: Keep Them Open or Close Them?
All the professionals will tell you closing your credit cards could damage your credit score.
But so can using them to the point you can’t afford to make the payments any longer.
I closed my cards despite what others told me to do.
I knew I had to do this to get a handle on my spending.
It worked and yes I did take a hit, but now years later my score is a whopping 801.
Credit scores go up and go down. They are fluid.
If you’re willing to take the hit, closing them might be the best scenario for you if like me you had a serious problem with self-control.
If you don’t, keep them open but out of your wallet.
Keep Working On Your Money Issues
For the good majority of us that struggle with credit card debt we got there because we had a problem with overspending.
Unless we’re willing to figure out what our motivation is behind our spending, it’s likely the issue will never be permanently resolved.
That’s why so many have gotten out of debt only to find ourselves back there again.
Take the time to find out what’s motivating your spending and look for healthier alternatives that don’t involve shopping, malls or your credit card.
In the end, if you use these methods outlined, you’ll find yourself making serious headway towards getting and staying out of debt and that’s debt advice you can take to the bank.
