How to Settle Your Debt and Find Room for Savings. Financial obligations fall across a wide range of costs, from transportation to education. It is not uncommon to amass some debt along the way, meeting life’s financial commitments that you can’t pay entirely up front. Mortgages, for instance, represent hundreds of thousands of dollars, enabling buyers to make major purchases, paid-off over decades. Student loans and credit card debt add further to the outstanding financial obligations taken-on by many individuals.

Unfortunately, as debt mounts, it becomes harder for some people to meet the daily cost of living and still carve out room for savings. There is hope for anyone managing personal finances, however, in the form of proven debt-reduction strategies.

Keep Repayment on Track without Feeling the Pinch

Daily life generates a slew of expenses, so keeping up with the basics requires a steady financial base. At the same time, however, outstanding debt pulls at family budgets, making it harder than ever to get ahead. It can be difficult to prioritize when faced with competing expenses. On one hand, food, housing, and other necessities clearly require financial resources, but at the same time; turning your back on big-picture debt can escalate into problems.

With so many financial obligations and limited resources available, successful personal money managers must strike a delicate balance allocating funds. The good news for those able to weather the storm is that lower debt leads to increased savings. Use these tips to help reduce household debt and open-up savings opportunities:

Evaluate Debt Terms –

There are several reasons to review interest rates and other features of your personal debt. For starters, you may be leaving money on the table, failing to take advantage of better offers that were unavailable at the time you initiated a loan or other debt. Mortgages furnish one of the most obvious examples of the importance of staying tuned-in to your outstanding balances and the terms of each repayment schedule.

Let’s say you purchased a home 10 years ago, with a 6% annual percentage rate loan. Should rates drop, as they did recently, following a major industry shake-up, you may find yourself in a position to secure better terms. A 4% loan, for example, would quickly pay for the cost of refinancing, based on the comparative savings yielded by the lower rate. Each case is unique, so it is important to review all the potential costs of refinancing, before committing to a new loan.

Manage Credit Card Debt –

Credit cards are a modern-day convenience we could scarcely live without. Unfortunately, however, debt quickly rises when card use is not prudent. Periodic review helps keep tabs on card balances, before you get into trouble. Remember, there are other ways to finance purchases, so high interest credit cards may not be your best approach. Various short and long-term loan products, for instance, serve many minor financing needs, so it pays to compare and contrast alternatives.

Even with bad credit, you may qualify for reasonable financing. To help reduce your reliance on credit cards, use loans to fund purchases, but also consider a loan to wipe out existing debt. If your credit card debt has grown unmanageable, a guarantor loan, cosigned by a friend or family member, is a viable loan option for paying off a high interest card balance. Rolling debts into a loan with better interest rates not only simplifies repayment, but can save significant sums during the payoff period. For the best results finding firmer financial ground, set the cards aside as you get your house in order, to break the cycle of unmanageable debt.

Prioritize Payback –

Much like money saved consolidating debts into loans with better rates; paying your highest-interest obligations first, trims the overall expense of payback. Let’s say you have a student loan, for instance, in good standing, with multiple payback options. In such a case, it may make sense to defer repayment under your student loan terms, to address a different outstanding debt with a higher balance or cumbersome interest rate. On the other hand, during flush financial times, it may be possible for you to pay ahead on debts. Paying mortgages twice monthly, instead of just once, for example, cuts the overall interest paid on the loan. In order to set a course for success, list your balances and corresponding rates in order of highest APR to lowest, and begin to prioritize your payments.

In Closing:

Debts are an expected part of individual personal finances, so successful money management relies on certain strategies to keep cash flow in order. Periodic assessment, with an eye toward affordable payback, ensures balances are addressed efficiently. And prioritizing repayment, while limiting credit card use, frees resources to help pay off balances and save money for the future.
Do you have a smart plan to handle debt while on your Financial Independence quest?
Note: This post is brought to you by Derek Fisher (not the basketball coach) who is a freelancer.