One of the hottest topics in America today is learning how to reduce debt. It seems as though everyone these days is a victim of high debt. In addition to reducing debt, it is also important to build up a savings account to use as a reserve in the future to avoid going back into debt. This article will focus on some basic tips that will help you reduce your debt, as well as some helpful ideas that can help you to build up a solid savings account in no time.
What is most important? Should you pay off your debt first or build a savings account? You might be surprised to learn that both are equally important. The strategy that we will discuss here will involve learning how to manage your cash flow, while paying off your debt and building your savings at the same time. It is important to do all three because the skills required to do each of these will help you greatly in the future.
Your New Bedford credit union can be a key component in your debt reduction and savings plan. Through the use of various savings programs, your credit union savings account is a tool that should be used to help you increase your savings opportunities. Speak with your representative for more information on the different types of savings accounts and money market programs available that can help you to build your savings while you pay off your debt.
Step One – Track Your Spending
The best way to reduce debt is to monitor your spending habits and see if there are some areas where you might be able to cut costs and increase savings. Use your New Bedford credit union checking account to track how much you spend on utilities, food, entertainment, gas and other common household expenses. Keep track of how often you go out to eat and even write down what you spend on incidentals, such as trips to the mini-mart for snacks or sodas.
Consider using a personal finance software program. Most computers come with a basic version of financial tracking software, but there are plenty of programs available that won’t cost you an arm and a leg. Once you have a full month’s worth of expenses you can also figure in what you would spend each year on gifts, car repairs, home repairs, vacations and any other annual expense. Add that amount together and divide it by twelve to get a more accurate average monthly expense.
Step Two – Determine How Much Money You Have to Pay Off Debt
Paying off your bills to reduce debt is an essential part of the overall process. However, it is also important to know how much money you have to pay off debt so you can create an organized “plan of attack” that will help you reduce debt and build your saving account even faster. The first step is to create a balance sheet and list all of your debts, organized by the interest rate for each debt, from high to low.
On another sheet, list all of your liquid assets, including any savings accounts, investments or real property that you could sell to help pay down your debt. Make a list of any major purchases that you will need to make in the next twelve months, such as replacing an appliance, doing car repairs or anything above and beyond the rest of your budget. Subtract the total from the list of your assets. The amount that is leftover is the amount that you have to help pay down your debt.
Step Three: Start Making Payments
The next phase is to start making payments on your debt. You can make payments via check or by using a bill pay service from your credit union savings account or checking. Start by paying down the bills with the highest interest rate first to help reduce the amount of additional costs, fees and debt that can build up each month. Once you pay off a credit card or loan account, check it off from your list and do not under any circumstances put more debt onto that account. Speak with your New Bedford credit union about other options for online bill pay that can help you to quickly reduce debt as you pay off your bills.
Step Four: Begin Building Your Savings
Your New Bedford credit union can help you to build your savings accounts and plan for future expenses. The Main Share savings account that is required of all credit union members can help you establish your initial savings account and help you get started. Other savings plans, such as the Christmas Club, can be used to save for holiday spending so you won’t touch your other assets or over-spend from your NOW Checking account.
For larger savings opportunities, consider investing your savings into a Certificate of Deposit (CD), Money Market Deposit Account or start saving for retirement with an IRA Share Account. Speak with your New Bedford credit union representative for more information about credit union savings account opportunities.
Step Five: Build Good Habits
Know what your spending weaknesses are and learn how to avoid them by building good habits. You can reduce debt quickly if you learn how to manage your money and avoid making unplanned purchases. For example, learning to only carry your bank card when you really need it and using cash to pay for daily expenses, groceries and other point-of-sale purchases, can help you to prevent over-spending. Knowing how much cash you have on you will help you keep better track of what’s going into your shopping cart so you won’t over-spend.
How Your New Bedford Credit Union Can Help
There are lots of ways that your credit union savings account and checking services can help you to increase your savings and reduce debt. Speak with a representative today for more tips and ideas that will help you build a savings account and be better prepared for the future.