The giving season should be a special and exciting time, but it often comes with a heavy price tag and increased debt. While fewer Americans took on additional debt in 2020, the challenges many faced due to the pandemic resulted in average holiday debt reaching a 6-year high at $1,381.
To help, we’ve outlined four things you can do to help you achieve financial freedom:
Define your numbers. Before you can start paying down your debt, you need to know where you stand. Get started by reviewing your financial situation, including paychecks, loan balances, and bank statements.
Choose your strategy. Now that you know where you stand, you’ll need to make a plan and clearly define your priorities. There are several debt pay-off strategies that could help you reach your goals. Here are a few of the most common:
- Avalanche Method—if your goal is to save money on interest over time, the avalanche method tackles your highest-interest debt first. By paying more than the minimum each month, the balance will pay off faster.
- Snowball Method—if you want to pay off your smallest debt first (and celebrate those ‘wins’), the snowball approach will help you achieve your goals. Each time a smaller debt is paid off, those funds can be used towards other debts.
- Debt Consolidation—if you’re looking to reduce the number of payments you make each month and possibly lower interest rates, consolidating your debt into a single payment is a great option. We cover consolidation options in our Debt Consolidation: The Key to a Debt-Free Future
Change your money mindset. Reaching your financial goals is easier when you also change your money mindset. Take a look at what decisions contributed to your financial situation, forgive yourself, and move forward. Research shows finances can affect your quality of life, so making different choices can help you get back on track. Check out our blog on 3 Ways to Tackle Financial Hardship to learn more.
Make a budget. Curbing overspending is a quick way to find extra money each month to apply towards debt. Making and sticking to a budget will be a key factor in your success. There are several budget methods. Here are three of the most common:
- Line-item—this is the “typical” budget most people imagine when creating a budget. To start, list each monthly expense or category. Then deduct each amount from your monthly income.
- 50/30/20—the idea with this method is to break down your expenses into three expense categories: Necessary (50%), Savings & Debt (30%), and Discretionary (20%). Depending on your goals, you can customize the percentage allocations. Read our 50/30/20 blog to learn more.
- Zero-Based—with this method, the goal is to “spend” every dollar. Each month assign a purpose to each dollar you earn, including saving, paying more towards debt, or discretionary spending. To learn more about this budget method, check out our Budgeting: Zero-Based
Don’t let your debt get you down. Making small adjustments over time will help you develop new healthy financial habits and reach your debt-free goals. At Yolo Federal, we can help you plan ahead with custom savings accounts for known expenses during the holiday season or consolidate your debt to our low-rate Visa Gold or Signature Loan. Apply today or schedule an appointment with a representative to get started.