Six Steps to Paying off Debt and Investing in your Future

canstockphotoIf you were to lose your job tomorrow would you have enough saved up to pay your monthly expenses? What if you were to retire next year or the year after, do you have enough money saved up to cover your expenses and any medical bills that are likely to arise?

Consumer debt has taken control of many budgets. If you are struggling to pay off your debt and wonder how you can possibly save for the future when you have so many bills to pay, don’t lose hope. Learn to take advantage of financial support programs to help with current finances and start learning positive financial habits. Overtime you will eliminate your debt and begin accruing money which you can invest for your future.

Here are six steps to help you on your way:

1. Ditch the credit cards and stop taking out loans:  The most important thing you can do first is to stop accruing debt. So stop spending money you don’t have. Don’t take out a car loan. If you have to buy a junker until you can save up money for a better car, do it. Or better yet take public transportation and skip the insurance and gas payments.

2. Save up an emergency fund: Start saving enough money to cover at least one month of bills. Keep making minimum payments on your debt until you have saved up at least $1,000 to use in case your car breaks down or you have unexpected medical expenses. Having an emergency fund at hand will ensure you don’t have to rely on credit cards when the going gets tough.

3. Pay off your smallest debt first: Put anything extra you have towards paying off your smallest debt. (Sell things, use tax returns and cut back on extras). Once you have your smallest debt paid, you’ll feel a sense of accomplishment which will help you stay motivated. As soon as that debt is paid off take all of the money you were paying towards that bill and pay it towards the second lowest bill until it is paid off. Continue stacking the funds until you pay off your final debt. This is commonly referred to as debt stacking or the debt snowball.

4. Don’t fall into bad habits: Once your debt is paid off, don’t go back to spending a ton of money. Consider building up your emergency fund a little bit more and using the rest of the money to invest elsewhere. Have a plan for how to use your money so you don’t start spending irresponsibly.

5. Invest wisely: When you are planning for retirement, investing wisely will help ensure you have enough money when you need it. Talk to a professional planner or fiduciary, but also learn as you go, your money is ultimately your responsibility.  Ideally you should avoid putting all of your money into one investment, diversification is key. Check out annuities, mutual funds, shares, real estate among other financial investments.

6. Reward yourself: Paying off your debt and beginning a retirement fund is hard work! Plan a fun reward for when you get all of your debt paid off. Consider a fun vacation or a nicer car. Remember to pay for your reward in cash! Once you’ve paid off your debt you may want to keep 20 percent of what you were paying towards debt for extra fluff to your account and use the rest to invest in your emergency fund or your retirement account.

Hard times may come in our lives where we need some cash to fall back on.  By taking a few steps today, we can enjoy better tomorrows.