It’s not difficult to reduce your debt. It’s a matter of getting into a habit to always spend less than you make. So that eventually, not only are you reducing your debt, but you’ll also be saving for your future.
Where do you spend your money?
Before you can reduce your debt, you need to know where you’re spending your money. Keep track of your spending and categorize them into Food, Recurring Bills, Entertainment, and so on. Most importantly, add in a column for “needs or wants”.
You can reduce or even eliminate items marked as wants if you’re pressed on reducing your debt.
Forbes conveniently created a list of apps to help you track your spending.
Here are more tips on how to reduce your monthly spending.
Set financial goals
Where do you want to be 30 years from now? Let’s say your goal is to reach $1,000,000 in 30 years. The earlier you start saving and investing, the easier it is to reach that goal. However, debt will slow down your progress because you have to pay interest.
So, the faster you repay your debt, the sooner you get to save and invest. It only makes sense to let your debt accumulate if you can guarantee higher returns from your investments.
For example, if you can earn 10% on your investments, you can repay your debt that costs you a 5% interest at a lower pace. In this case, you’d be using leverage to grow your assets.
However, whether to use debt to invest really depends on whether you sleep well with the debt that you have and how sure you are of generating high enough returns from your investments. Read More