Debt can be burdensome in your midlife years. It can get in the way of pursuing many financial goals, like starting a business or saving for retirement. Thus, if you care about your long-term financial security, paying off your debt fast should be a top priority.
If you want to be debt-free by 50, you need to set goals, calculate your total liability and work out ways to improve your finances now. There is no time for indecision, procrastination and foot-dragging.
A debt issue does not just go away on its own; You need to take active steps to resolve the problem.
First things first—set a goal and believe in yourself. There is nothing more important than believing that you will succeed because only then will you have the opportunity to achieve results. Once you feel that you are ready to get out of your debt, it is time to take concrete steps to achieve this goal.
Start by identifying your debt and expenditure details.
Write down the most critical information about your debt in one place. You can do it on a piece of paper, a spreadsheet or whatever format suits you best.
What information do you need?
For the description of the debt, write the name of the liability, financial institution, total cost of the loan, interest rate, loan term, and monthly repayment amount. For example, “Consumer Credit, CitiBank, $10,000, 5.6% interest rate, 5-year term, $191.47 per month”.
Beside each debt, you can add your comments. Do not worry about the order. The important thing, for now, is that you complete the information about all your debts in one place. By doing this, you will find out where you are and what help you will need in subsequent tasks.
No more loans you can’t afford
Do not take out a new loan if you have no way to pay it back.
Closing all your credit cards is not advisable if you want to build your credit score. However, limit your credit card usage to the recommended 30% or less of its credit limit to maintain a good credit score. The lower your credit utilisation ratio, the better your score.
Always pay your monthly credit card payment by the due date to avoid the late payment fee. If you can’t pay off your balance in full, pay the minimum payment every month at the very least or more than the minimum payment if you can.
Remember, however, that if you only pay the minimum balance, you’ll end up paying more in interest and spending several years to pay off your credit card debt. If you use multiple credit cards, pay more on the card with the highest interest rate first while making minimum payments on all cards
If you want to stop using all but one of your credit cards, make sure to pay off their balances first before contacting your providers to close the accounts properly. Do not close active credit cards because it would lower your available credit and increase your overall utilisation.
Get a bad credit loan
Multiple debts can be consolidated into one account through a bad credit loan. This type of financing is meant for people who can no longer qualify for loans from traditional lenders because of bad credit history.
By merging all of your debts into one account, you make just one periodical repayment. You can also save money if the new loan has a lower interest rate than your old debts.
A bad credit loan also gives you a second chance at financing, helping you get the needed funds for various personal or business projects. For example, you can still get a car loan with bad credit although you will be charged with a higher interest rate because of the high risk taken on by the lender.
Build an emergency fund
Your next task is to save some money and create an emergency fund. It is advisable to start with a $ 500 fund. If you do not save, you will have to take out a loan the first time you find yourself in an emergency.
You must depend on your own money if you have an incident, and you can only do that if you have an emergency fund.
Create an action plan
The time has come to establish the order to pay your debts. Your goal is to create a plan which will follow your progress in the fight against your enemy, and on the other hand, motivate you to keep going.
There are two ways to do this: the mathematical and the emotional. In the first one, you pay debts with the highest interest rate, and therefore, minimize the total amount of interest paid.
From an economic point of view, this is the most optimal method but you need to have discipline and nerves of steel. In reality, this discipline can be difficult to do when one is in debt.
The second method focuses on your emotions. It is about ordering debts, from the lowest to the highest total amount, without worrying about interest rates. Then, you make the minimum payment on all debts except the smallest debt, which is the first on your list.
To pay off this smaller debt, use all the extra money you can find. Once you deal with the first debt, allocate all the extra money to pay the next debt on your list.
This method is known as, “the snowball method”, which was introduced by Dave Ramsey, a famous American personal finance guru to help thousands of Americans get out of debt.
Getting out of a crippling debt can be challenging, especially if you have a large amount to repay. However, it is entirely doable and reachable. If you want to be debt-free by 50, keep your focus and stay motivated. In the end, it is your self-discipline and your good action plan that will help you reach your financial goals.
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