Paying off debt is a great way to free up money in your budget to create more flexibility when it comes to trading your time for money.
That is because you will have fewer monetary obligations to fulfill every month.
To mitigate any hard-hits to your credit score, continue making on-time payments, and balancing your utilization rate. You can also consider paying off debt with high-interest rates first, like personal loans and credit cards.
Here are great examples of what you can do with the extra money that’s burning a hole in your pocket:
- Build up an emergency fund
- Start or increase retirement contributions (IRAs and 401ks are an excellent place to start.)
- Save for college expenses in a 529
- Make a sinking fund for a vacation (utilize travel rewards to decrease your costs)
When you’re paying off debt, you need to go about it the right way. That involves thinking about how your debt payoff strategy will affect your total cost of debt. The financially savvy way of paying off debt is the debt avalanche method.