A Path to Financial Freedom  

Debt is the state of owing money. When it comes to managing debt, you’re not alone. According to CNBC, “The average American has $90,460 in debt,” but don’t let those numbers intimidate you. The amount of debt for each individual and age group varies. Debt is not always bad; there are different types of debt that can help you generate wealth. For example, buying a home or receiving student loans to pay for your education can ultimately lead you to generate wealth over time. On the other hand, consumer debt like auto loans, personal loans, and credit cards may not increase your wealth as they depreciate in value. Managing your debt is crucial, whether you’re starting adulthood or have advanced financial knowledge. The following steps can help you manage and reduce your debt: 

1. Stop Accumulating Debt

It's easy to apply for more credit cards and keep up with ever-changing luxuries. However, if you want to get out of debt, you need to stop incurring unnecessary debt. Here are a few tips to help avoid incurring debt: 

• Emergency Fund: This cash reserve can help you manage unexpected expenses. A common rule is to save 3-6 months of expenses. For example, if your monthly bills and expenses total $2,000, aim to save $6,000-$12,000. 
• Always Have Insurance: Yes, always have insurance. Having insurance on your home, business, automobile, etc., ensures that if an emergency occurs, you and your belongings are protected. For instance, if you miss an automobile insurance payment and get into an accident, you won't be covered and will have to pay out-of-pocket for damages, rather than just paying your deductible. 
• Create and Stick to a Budget: Do you have a budget? Do you stick to it? A budget is a financial plan for a defined period, usually a month or a year. Having an established budget can help you control your debts and expenses.

2. Paying off Debt

Life happens, and sometimes paying off debt doesn’t fit the budget, but making it a priority is achievable. Start by tackling high-interest debts and those with fees. Here are a few strategies to help pay off debt: 

• Utilizing the “Snowball Method”, This strategy involves paying off debts from smallest to largest. Once you pay off the smallest debt, move to the next smallest, and so on. It helps you build momentum as you see debts disappearing one by one. 
• Apply the “Avalanche Method” This strategy focuses on faster debt elimination for individuals with large debts that have higher interest rates. Start by listing all your debts from highest to lowest interest rates. Use any extra money to pay off the debt with the highest interest first. This method saves you more money on interest over time.  

3. Take Caution

There are many companies that offer debt management assistance. It’s important to be cautious and thoroughly research any company you consider to ensure they are legitimate. Unfortunately, debt management scams are common and often prey on those experiencing financial stress. Here are some options to help you take control of your debt:  

• Consolidating Debt- Consolidating your debt can be an effective way to manage it. This process involves getting a loan from your local and trusted credit union to pay off multiple debts. 

Managing debt can be challenging and stressful, but you don't have to face it alone. Rally is always here for you and your financial needs. Whatever life brings, we have a loan for you! 

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