Are you buried in debt? Do you feel overwhelmed, like you’ll never be able to dig your way out of the financial hole you’ve found yourself in? Unfortunately, this feeling is far too common. Americans are up to their eyeballs in debt; in 2015, the average household owed a whopping $7,000 in credit, with an overall debt of $15,609. Seeing how much you actually owe can cause panic; for many, this panic lends itself to avoidance. Ignoring the problem won’t make it go away, and coming up with a plan to tackle your debt as soon as possible is crucial. Consider the following ways to make your way out of debt and start moving towards a healthy financial future today.
Make Some Extra Money
If your budget is already tight and you want to work down your debt, you’re going to need to find a way to supplement your income. This may mean seeking a promotion at work that offers higher wages, or taking on a second job to supplement income. As for a second job, there are plenty of ways to make money without even leaving your house or changing out of your pajamas. Whether you’re a skilled writer or photographer, using your skills to pick up freelance jobs on the side can help you pad your wallet quickly. Although it doesn’t pay a lot, some people find success taking online surveys. Are you in dire need of immediate cash? Consider a good old fashioned garage sale or use a site like LetGo to sell unwanted or unused items to a local buyer.
Avalanche Vs. Snowball Payment Methods
Financial planners generally recommend two different types of payment method: the Avalanche method and the Snowball method.
If you have accounts with high interest rates, you’ll likely want to use the avalanche method. You must place your accounts in order of interest rate from high to low. You then start from the top, funneling all of your available funds to paying off that single debt, before moving onto the next in the line. This helps you avoid spending excess money on interest rate buildup that could have been avoided.
If the sheer number of debt accounts is overwhelming you, the snowball method is probably a better approach. This method requires you to place your debts in order of smallest to largest total account balance. You then pay off the smallest account first before moving to the next in line. This can be psychologically satisfying, and helps inspire certain personality types to continue paying their debts off.
In some cases, a combination of these two plans us the best solution. Deciding between the two options can be difficult; if you’re having a hard time nailing down the correct strategy, consider hiring a financial advisor who can plan out your payment schedule.
When it Comes to Tax Debt
There’s a big distinction between credit debt and owing back taxes to the government. If you owe money to the IRS, your biggest priority should be settling those accounts as quickly as possible. Failing to pay an outstanding tax debt can result in serious consequences. The IRS could choose to levy your personal possessions, including real estate, bank accounts, cars, boats, and even your wages. While the IRS only takes action like this after you’ve ignored numerous notices, the threat of long-lasting consequences is real. Receiving a Notice of Deficiency can be terrifying, but the last thing you should do is ignore these letters. The moment you receive a notice, get in contact with the number listed; the IRS is willing to work with taxpayers that show true effort towards getting their debts settled.
If you’re struggling with debt, you’re not alone. Change your financial future with these important strategies and leave 2017 debt-free.