April is Financial Literacy Month, and in this video, Rebecca Foote of the Rebecca Foote Mortgage Team and Matt Gunter of Financial Growth Partners share valuable insights on how to pay off debt. In this blog post, we’ll summarize their tips and provide additional information on how you can start paying off your debt today.
The Importance of Being Liquid
One of the best ways to get out of debt and stay out of it is to be liquid. Having a safety net of 3 to 6 months of bills and expenses will help you avoid falling into more debt when unexpected expenses arise. This is because many people turn to credit cards to pay for emergencies when they don’t have enough money in their checking accounts. In this section, we’ll discuss why having liquidity is essential and how it can help you achieve financial stability.
The rule of thumb is to have at least three to six months of bills and expenses saved up. Why is this important? Because life happens, and unexpected events require money. If you don’t have savings to fall back on, you’ll likely turn to credit cards and incur high-interest debt. Therefore, the first step to paying off debt is to create an emergency fund.
Creating A Sink Fund
After you’ve built up your emergency fund, the next step is to create a sink fund to start paying off your debt. A sink fund is a savings account dedicated to paying off your debt, and it can help you pay down your debt more quickly while protecting you from life events that could cause you to fall back into debt. In this section, we’ll discuss how to create a sink fund and how it can help you achieve your financial goals.
To pay off debt aggressively, llocate any extra funds to pay off debt, starting with the smallest ones. Then, roll the payments into the next debt, gradually increasing the amount you pay off.
Choosing A Debt Payment Strategy
There are many ways to pay off debt, and choosing the right strategy for you depends on your financial situation and goals. In this section, we’ll discuss two popular debt payment strategies: the snowball method and the lump sum method. We’ll also provide tips on how to choose the best strategy for your situation.
When paying off debt, it’s crucial to have a plan. You can either use the snowball strategy, starting with the smallest debt and working your way up, or the lump sum strategy, where you pay off the highest interest rate debt first. Choose the strategy that works best for you, but make sure to stick to your plan.
Conclusion
Paying off debt can be challenging, but with the right strategies and mindset, you can achieve financial freedom. By building up your emergency fund, creating a sink fund, and choosing the right debt payment strategy, you can start paying off your debt today. Remember, financial literacy is essential for achieving your financial goals, so take the time to educate yourself and invest in your financial future.
If you have any questions make sure you reach out to Matt at Financial Growth Partners and if you’re looking to buy, build, or refinance, make sure you give us a call and we’ll be happy to help. Don’t forget to subscribe to my channel so you don’t miss our next video in our Financial Literacy series!