We all want to reduce our debt and reach our savings goals. But how long should it take? As much as we’d like to be debt free sooner rather than later, trying to pay down debt too quickly can leave you with nothing in reserve, which only continues the cycle of debt.
On the other hand, a plan that takes too long allows interest to build, which also hurts your ability to pay down your debts.
Here are some helpful suggestions on how to develop a realistic timeline for your debt and savings goals.
1. Three to Five Years
Ideally, if you want to pay off your credit card debt at a healthy rate, three to five years is a reasonable time frame. It may seem like a long time, but if you think about it, it’s only 36 or 60 payments in total.
Want to figure out how much you’d need to spend to reduce your debt in this period of time? Our Debt Credit Card Payoff Calculator is a great place to start. You can experiment with different monthly payments to determine what works best for you.
If you find that you can’t reduce your debt in this time frame, it may be a sign that you need to consider working with a Credit Counselor and/or taking advantage of a Debt Management Plan.
2. Consolidate to Lower Interest – Carefully
One way to help improve your chances of meeting your timeline is to transfer balances to 0 percent interest credit cards. However, this should be done carefully. Look for cards that have the longest possible period at 0 percent interest. Also, make sure the interest isn’t higher than what you’re paying now.
Also, make sure that you stop using the original card once you’ve transferred a balance. Otherwise, you’ll just find yourself deeper in debt.
3. Don’t Count on Windfalls
If you’re expecting a windfall such as a gift or inheritance, it’s easy to fall into the habit of counting on it to pay for future expenses. However, unless the amount of money and the delivery date are guaranteed, you may find yourself disappointed in the long run.
Instead, base your plan on the money you have, not the money you hope to have. That way, when you do get the money, it’s an added bonus that you can apply toward your goals.
4. Don’t Forget to Save
Saving money should also be a part of your debt reduction timetable. This is because it’s difficult to predict the future. If unexpected expenses, such as home damage or auto repair pop-up it’s better to have money set aside in savings to cover these expenses, rather than having to add to your debt.
Ready to get started? Schedule a free counseling session today or call us at 800-920-2262.