Saving money can be an incredibly slow process, and paying off personal debt can be even more tedious. Both take patience, discipline, and determination. Once you learn how to use interest rates to your advantage though, your money will start growing before your eyes.
However, you have to learn to pay yourself first. Many people spend their excess cash from their paychecks before thinking twice. Saving isn’t about getting rich quick, but rather about the steps you take to reach long-term goals. Money can grow fairly quickly, if you play your cards right. There is no clear-cut way to save money because the best savings and debt management plans varies from person to person.
Consider these tips to save and pay off your debt—quick.
How to Save
Living Within Your Means
Everyone has different needs, obligations, and financial budgets. You only need to worry about your own. Even though everyone likes keeping up with the Jones’s, they’re likely to foreclose on their house and may have already filed for bankruptcy. It’s cool to be frugal again, thanks to the recession. Make budgets for all categories of expenses and find ways to crack down on all your budget spending. Explore free activities and cook all your food at home, using fresh, whole foods, as well as frozen fruits and vegetables. Challenge yourself to hit new lows in each category every month. If you have a family, get them in on it too. But be sure to give yourself small rewards every once in a while to keep yourself motivated.
Keep Your Money in a Savings Account
A checking account is intended for spending, while a savings account is intended for saving. So allocate accordingly. You should always store a significant amount of your check into a savings account. The less accessible your money is, the more likely you are to accumulate interest. By doing so, you will have a safe, secure account to use for holding investment money. Consider a High Yield Savings Account to store your money for the long term.
Deposit Excess Funds in Money Market Accounts
Money market accounts serve as savings or investment accounts, but they pay a higher interest rate than a conventional savings account. They often restrict transaction capabilities. Institutions have more discretion with your money, which results in higher interest rates for you. Money market accounts are ideal places to store investment cash.
Make Use of Company Retirement Plans
It’s not all about the next few years; you need to save for the distant future, too. In a traditional employer sponsored 401(k) plan, employees contribute pre-tax earnings to a retirement plan. The funds in the account are then allocated according to the investments made available to the plan. Conversely, a Roth IRA plan requires after-tax contributions, while allowing tax free growth, so long as the contributions have been invested for at least 5 years and the account administrator is 59 and-a-half years of age. Both options have their advantages, but a Roth 401(k) combines the biggest advantages of both in one account. Under a Roth 401(k), employees can contribute funds on an optional post-tax deferral basis. And there are higher limits on deposits.
How to Pay Off Debt
Pay More Than the Minimum
Many people fail to pay more than the minimum amount on their credit card debt. This prolongs the pains of debt and allows credit card companies to charge more interest. The staff at MotleyCrew.com recommends doubling the minimum payment. “The longer you take to repay the charges, the more interest they (banks) make, and the less cash you have in your pocket.”
Snowball Your Payments
If you have debt on multiple credit cards, you may be able to transfer the debt of one to another with lower interest. This can help you pay a lower interest rate, while focusing on a fewer accounts. If you cannot transfer all into one, funnel as much as you can into a low interest account and pay off one at a time, while making sure to pay more than the minimum balance on all cards.
Borrow from Your Retirement Account
This may seem counter intuitive, given our advice in the savings section so look at this as a last resort. If paying your debts is the first priority, withdraw money from your retirement account and put it towards your credit card debt, student loans, and other high-interest debts. Just be sure to invest more money in the future to make up for it.
Seek Help from Loved Ones
There’s no shame in asking friends and family for help. Most people get into financial trouble at least once. If you borrow from them, you won’t have to deal with creditors. But don’t borrow from loved ones unless you’re absolutely sure you can pay it back. Create a payment plan and stick to it, so you don’t treat it casually. If not, you could ruin great relationships and burn much-needed bridges.
Renegotiate Terms with Creditors
If you’re facing bankruptcy, you may be able to renegotiate terms with your creditors. MotelyFool.com says to “Ask for a new and lower repayment schedule; request a lower interest rate; and appeal to their desire to receive payment … creditors will do what they can to protect themselves against a total loss.” And if you’ve been out of work for a while, you could claim financial hardship, which will allow you to close your account and pay lower interest until it’s completely paid off.
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