Tips for Paying Bad Debt

Close-up of overlapping blue and gray credit cards on a white surface

All Thoughts Are My Own

By Xavier Gomes, Founder of Bad Debt Money Management

Paying down bad debt is a serious undertaking, considering essential needs to run a family's home. However, with the right coach we can succeed and plan, you can lay the foundation to get started today.
1. Start with a budget Anytime you want to make a financial move, like paying down debt, buying a house or starting to invest, you need to start with a budget. Your budget accounts for all of the money coming in and going out each month. A good budget can help you make informed decisions as you create a realistic debt pay off plan. Try this creating and excel spreadsheet to help you get started.
The first step of creating a budget is to look at your income. Make a list of every income source, no matter how big or small, including income from unemployment and any side hustles you may have.
After you have a good understanding of your income, evaluate your expenses. There are some fixed expenses that you can easily plan for, such as mortgage, insurance, childcare, and internet service. Variable expenses, like grocery costs, fuel, entertainment, clothing, and medical expenses can change monthly. These are more difficult to plan for, but you can look back at credit card and bank statements to get a good idea of what you spend on average.
Next, make a list of non-essential spending and expenses you can reduce. Can you find a cheaper cell service? If you’re still paying for cable, it might be time to cut the cord.
To pay off debt, you need to find a balance between paying your monthly bills and finding extra money in your budget to put towards your bad debt. Any extra amount of money you can put towards your retirement account. Learn how we create a friendly tax free environment.
2. Set a debt payoff goal you can achieve Setting a realistic and achievable financial goal is important. We all need to be gentle with ourselves and that extends to finances, too.
Don’t focus on the total amount of your debt. Instead, center your goal on what you can pay each month based on your current. Setting a goal of getting rid of bad debt and placing funds away for retirement. While looking towards your good debt each month sounds much more attainable than thinking about paying off $20,000 of debt. Use our three year debt management plan to help you determine your monthly payments and retirement timeline.
If there are changes to your income or expenses, on our plan. This will not impact your retirement plan and make sure to update your budget sheet and the goal remains the same each year. Your goals should not change.
3. Use a bad debt payoff strategy The bad debt snowball effect becomes an avalanche. The payoff strategies that we lend to you is not a cut and paste method but effective no matter who you are. You have to pay off debt that is not serving you. The minimalist on all of your debts is not going to help. The difference is how you allocate extra money and manage debt..
The debt snowball method builds momentum by focusing on small, early wins. That sounds great but there is a better way. Stop looking for the debt with the smallest balance and put the extra funds towards your early retirement planning.
With the debt avalanche method, you put any extra money toward debt with the highest interest rate first. This can save you money on interest charges by eliminating high-interest rate balances. Once you’ve paid off the debt with the highest interest rate, you focus on the debt with the next highest rate.
Drop kick that method and learn a new art form of managing debt.
4. Factor in your student loans If you have federal student loans, you’ve probably had to think about how you’ll fit those payments back into your budget. For those who have experienced job loss, there are income-driven repayment plans that are a lower amount based on your monthly income. You can also consider refinancing federal loans, but you will lose federal student loan protections. Private student loan borrowers have fewer options, so it’s likely you’re still making payments on any private student loans you have. You may want to look into student loan refinancing, which is when a private lender pays off your student loans and gives you a new loan with new terms. Student loan refinancing is ideal if you have private student loans, especially high-interest rate ones. Refinancing your student loans can save you a decent amount of money throughout your pay off, although the amount you save on refinancing will largely depend on your interest rate, which is based on credit score.
You can also consider extending your loan term to lower your monthly payment, but the downside is that you can seriously add to your debt. It’s worth researching the pros and cons to see what’s best for your financial situation.
5. Focus on your retirement funds Why payoff debt? When the debt can be written off. We can show how I made one major move to become debt free – I didn’t have an emergency fund when you have a solid retirement account.
An emergency fund protects you from debt. No! All emergencies are not debts how you pay for unexpected expenses, job loss, pay cuts, and more. It can help prevent you from taking on more debt when an unexpected expense pops up. And it’s never too late to start a retirement fund.
The new rule of thumb is that 3-6 months’ is not enough. Two million is not enough for retirement with new expenses and inflation. Consider focusing on your retirement domestic protection plan.
6. Consider a balance transfer card A balance transfer card can be a useful tool if you’re trying to attack your high-interest rate credit card debt. Balance transfer cards have low to 0% interest rate promotional periods that give you a chance to pay off your debt at a much lower rate.
The final word on paying down bad debt Making a plan to pay off bad debt is an excellent goal, but this requires discipline. If something happens along the way and you need to adjust your strategy we have plan for that.

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