• Summiting Debt Mountain

    Summiting Debt Mountain
    By Urjit Patel

    Saving money is the path to financial security: It gives you the ability to recover from large expenses, to invest in a better quality of life and to sleep peacefully at night. You can pay for what you need, when you need it, without sacrificing your comfort and happiness.
    Unfortunately, it isn’t easy to make that ideal a reality. According to a CNN report, 40% of Americans would have trouble meeting an unexpected $400 out-of-pocket expense.
    The problem? Debt.
    Even if you have money in your bank accounts, the necessity of repaying debt and making interest payments can keep you on a paycheck-to-paycheck budget. It can be a challenge to save while also managing the minimum payments needed to preserve a credit score.
    Prioritize Your Debt
    It isn’t impossible to save while paying off debt, but it is much harder. The first step is to prioritize your loans and debts by interest rate. High-interest consumer debt, like a credit card balance, is much more expensive than other loans. Pay that first, and then look at your remaining debts.
    For lower-interest and long-term loans, there are several ways you can prioritize repayment. First is the ‘avalanche’ method, where you pay your loans in order from highest to lowest interest rate. This will usually save you the most money over time. Second is the ‘snowball’ method, which prioritizes paying off the debts with the lowest principal to quickly reduce the number of loans collecting interest. Third, you can pay your most stressful debts first. Loans from friends or relatives might fall in that category. An online debt calculator can help you decide what process works best for you.
    Maintain Your Credit
    Consistency and good habits strengthen your credit score, whereas unpaid bills are hard to erase from your financial history. No matter how you prioritize your loans, make sure you have a plan to pay the minimum balances on all your debts.
    To make ends meet in the short term, look for ways to make sacrifices in your day-to-day luxuries like entertainment, dining out or subscription services. Get in the habit of bargain hunting. Clip coupons when you go grocery shopping, pay attention to deals at your favorite restaurants and shop at thrift stores to save a few extra dollars every day.
    If your household is deeply in debt, or if you can’t realistically make your minimum payments, it may be necessary to consult a debt counselor.
    Budget from Your Bank
    Money tends to slide through the cracks, especially if you don’t monitor and allocate every dollar that comes out of your bank account. That means bringing together all your bank statements, loan payments, utility bills and restaurant receipts. Apps, like Axiom Bank’s, allow you to easily view all your transactions in one place, so it’s easier than ever to track your finances.
    Create your budget based on the money you have, not including credit limits. A good test of your budget is to ask yourself, “If I paid for everything in cash, would I make it through the month? Would I make it through the month after that?” If the answer is no, the budget isn’t sustainable.
    In practice, it isn’t necessary to completely avoid debt. Using credit cards in moderation is fine, if you can pay your balance in full and on time each month. Just be sure not to use credit as an excuse to buy beyond your means.
    Save What You Can
    Unexpected expenses can and will occur. Instead of letting new debts replace old ones, set aside money in a high-yield savings account for an emergency fund. An ideal fund covers three to six months of living expenses and should be easy to convert into cash.
    Axiom Bank’s new online savings account will give you a competitive return on every dollar, so your money can accrue value immediately. You can also set up automatic transfers to your savings account in the Axiom Bank app, which prevents you from overspending.
    If your income doesn’t leave much room for saving, start by putting aside just five or ten dollars a month. As you get in the habit, increase your contributions by a few dollars every month. At the end of your first year, you’ll have over $200 saved; by the second year, you’ll have over $800, and by year three you’ll have more than $1800.
    With careful planning and a disciplined lifestyle, it’s possible to move past debt and save for the future.
    Urjit Patel is Executive Vice President of Consumer Banking at Axiom Bank, N.A., a nationally chartered community bank headquartered in Maitland. He can be reached at upatel@axiombanking.com or 321-972-3971.