Looking at where you are in your current financial situation can help you plan for the future and align your spending and saving strategies with your long-term financial goals. It’s important to keep track of your debt and prioritize how to pay it off – and understand when to use credit or dip into your emergency savings. The tips below can help you better manage your debt over time.

Tip 1: Good debt versus bad debt

Not all debt is created equal. Before you take out a new loan or line of credit, you should fully understand the long-term impact debt can have. Some ideal uses of debt are to use it to finance a purchase that will appreciate over time, such as taking out a mortgage to buy a house or student loans to earn your degree, which can help you get a better job and a higher salary. Considering both the short and long-term impacts debt can have on your finances will help you better manage your money.

Tip 2: Debt payoff strategies: avalanche or snowball?

There are several different strategies to use to pay off or minimize credit balances. Choosing the right one will depend on the amount of debt you have, as well as what it takes to keep you motivated to stick with a plan. The snowball debt strategy is where you pay the minimum amount on all bills and focus all other extra monthly payments on the smallest balance. Once the smallest balance is paid, you focus on the next smallest balance.

With the avalanche debt strategy, you pay the minimum due on all your bills and pay as much as you can on the balance with the highest interest rate. Once the highest interest balance is paid, you move to the next highest and so on. Both debt management approaches have pros and cons, so consider your needs and select the strategy that works best for you.

Tip 3: Budgeting to pay down debt

Getting control of your debt requires creating a budget. Scale back on spending and determine how much money you need to spend on necessities so you can adjust your shopping habits. Consider cutting out big expenses or increasing your income with a second job. Debt can seem very overwhelming, and emotions can play a large part in how we react to financial planning. Money management can impact our stress levels, and ignoring debt or spending without a plan can end up making you feel worse. However, creating a financial plan—and sticking to it—can help you gain control of your finances, and your debt, over time.

Tip 4: When to use a debit card versus credit card

You may think it doesn’t matter what type of card you use for different purchases, but there can be significant advantages to using certain forms of payment depending on the situation. Using a debit card is a great way to begin learning how to balance your checkbook and manage your money. A key benefit to using a debit card is that it’s connected directly to a checking account, which means its money you already have and don’t pay interest on.

When using a credit card, you should already have some good budgeting skills and plan to pay off the balance every month. Credit cards can be very beneficial to use for large purchases because of their rewards programs and the benefit of paying for unexpected expenses immediately.

Tip 5: When to use credit cards versus your emergency fund

Keeping an emergency fund for unforeseen events such as auto repairs or health issues is an important part of any financial plan—but saving for the unexpected can be a challenge. When considering how to tackle an expense, consider the amount, timeline, urgency and other factors like interest rates and how quickly you could recoup the cost. This information can help you determine if you should use your savings or a credit card to cover the emergency.

As you strategize your debt management plan, a banker can help you stay on the right track by focusing on specific balances first, building a realistic budget and sticking to the plan when the unexpected happens. Staying savvy about debt management is a lifelong pursuit, so reassess your debts and budget over time to help home in on the best debt to tackle.

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