Three Steps to Effectively Manage Your Debt, Part 3 of 3

Rev. Dr. Patricia L. Hunter CFP^®

At MMBB Financial Services we understand the added stress you can suffer when carrying the burden of debt. This can cause extra anxiety for those in ministry who are expected to lead by example. Many people feel overwhelmed at the first sign of debt and are unsure about what they need to do to get their finances back on track.

This three-part series on how to effectively manage your debt was created to provide guidance to help you move toward financial wellness. Part-one focused on establishing goals, part-two on developing a budget, and in this final article, we focus on how to identify and ultimately eliminate debt.

Let’s be honest, when it comes to debt often all it takes is one unexpected expense to throw you off track. Paying off your debt takes time and discipline but it’s well worth the peace of mind – both mentally and financially. Eliminating debt begins with reviewing your bills and your budget (as described in Part 2).

Here are four steps to take to identify and begin to reduce debt:

1. Identify current expenses and sources of income.
2. Identify debt. Who do you owe? Amount? Interest rates?
3. Pay as much as possible on the debt with the highest interest rate first. Pay minimum amounts on the rest.
4. Do not incur additional debt while working to get out of debt.

Identifying current expenses is a necessary measure to provide an accurate picture of your spending and determining your total debt. It is important to understand the reasons behind your spending habits and if applicable, your spouse’s as well. Asking tough questions such as what can I do without and in what areas can I trim spending is essential to making the changes that reduce your expenses and debt load. There are also cultural pressures that can tempt us to ‘keep up with the Jones’ but at what cost? At the end of the day, you not your neighbors must be comfortable with your financial decisions.

Credit Cards

For many people, credit cards can be the largest source of debt. If most of your debt is on credit cards and other interest driven accounts, you will need to review the terms of the accounts and know your exact interest rates. The best strategy when trying to eliminate credit card debt is to pay off as much as possible on the card with the highest interest rate first. You might choose to pay off the card with the smallest balance instead; that may not be the most impactful but it can provide momentum since it does eliminate one card balance.

Keep in mind if you are a long-standing customer with good credit, a simple phone call to your creditors requesting to lower your interest rate might reduce your rate. Even a small reduction can save hundreds of dollars annually. Also, card issuers typically charge interest daily, so making two payments a month two weeks apart will substantially lower the balance over time. Remember once a credit card has a zero balance, cut it up to avoid the temptation of racking up new charges. Be prepared to close the account if there is too much enticement to use it again.

Student Loans

Some people graduate from college or seminary with a significant amount of student debt. It’s important to treat a student loan like a mortgage and pay off as much as possible because the interest is accruing. Inquire with your church or employer to see if they are willing to make some arrangement that can help with this type of debt. It is important to explore all your options.

Facing debt can be hard but getting organized and coming up with a set payment schedule to ensure you stay on track is key. Be sure to:

• Arrange for automatic payments and review your accounts regularly to help you follow through with your payment plan.
• Take your tax refunds or unexpected money you receive and put it towards reducing your debt.

These valuable tips are sure to get you started on eliminating debt now.

Bear in mind, the most important step is facing your debt and realizing that with the right tools and guidance you are well on your way to achieving financial wellness. Keep in mind that MMBB Financial Services has CERTIFIED FINANCIAL PLANNER™ professionals available to help with any questions or concerns when it comes to your finances. We offer this service at no cost as a benefit of your membership. To contact one of our CFPs, call 800.986.6222 or email [email protected].