5 Ways To Build Your Net Worth While Overcoming Debt
Many people believe that you cannot build wealth while paying off debt. The truth is, however, that the two feats can be tackled at the same time. There are several ways to help increase your savings while still conquering debt, even if that debt may seem insurmountable at the moment. Finding financial freedom may not be as far away as you think.
Here are five ways to build your net worth while overcoming debt.
Learn More: I’m a Bank Teller: 4 Reasons You Should Withdraw Your Savings Right Now
Find Out: 9 Things You Must Do To Grow Your Wealth in 2024
It's Going Viral: Want to Retire Rich? Suze Orman Says You're Missing This Key Money Move
Continue To Invest
One of the most common mistakes most people make when they are trying to overcome debt is failing to invest. They believe that any extra income must be put toward paying off debt and not toward savings or investments. Unfortunately, this can put you years behind your financial goals.
As reported by CBS News, it will take over 42 years to pay off a high-interest credit card with a $50,000 balance, paying only the minimum amount each month. Even if you are more aggressive, paying $1,500 per month, it will still take you over four years to achieve a zero balance.
Instead, continue to invest while following a strategy to pay off your debt. By investing early, you can take advantage of compounding interest, allowing you to build more wealth.
See Next: I’m a Bank Teller: 6 Top Ways You Can Keep Your Checking Account Safe
Set a Budget
Another critical step to take if you hope to increase your net worth while tackling your debt is to set a strict budget. Following a budget can help ensure you achieve your financial goals. Within the budget, you should set the amount of money you want to go towards debt and how much you want to save.
Make sure your emergency fund is healthy before you start investing. Having accessible cash is often critical when there is an unexpected expense and can help you avoid having to take on more debt.
Consider Following a Method To Pay Off Debt
If you are hoping to pay off debt quickly, you may want to follow either the avalanche or snowball method. In the avalanche method, you list all of your debts and begin by paying off the loan with the highest interest rate first. You put as much money as you can toward the loan with the highest interest rate, paying only the minimum amount on all other loans until the first debt is paid off. Then, you put the money you were paying toward the first loan into the one with the next highest interest rate until each loan is paid in full.
In contrast, with the snowball method you list your debts from the highest to lowest balance. Each month you put extra money toward the loan with the smallest balance until it is paid in full. Then you apply all of the money you were using to pay off the debt to the loan with the next highest balance until each loan is paid off.
By using one of these proven methods, you can pay off your debt faster, allowing you to begin building wealth through investing the money that you were using to pay each loan.
Max Out Your Retirement Savings
Even if you have a large amount of debt, it is still recommended that you max out your retirement savings. Depositing the maximum amount allowed can help ensure that you have a fully funded retirement despite having debt along the way. Take advantage of any matching opportunities through your employer, where the employer will match a percentage of your contributions to your 401(k).
Speak With a Financial Professional
Finally, any time you are hoping to build your net worth while overcoming debt, you should consult with an experienced financial professional. A financial advisor can help you plan for your future and meet your goals. They can help you establish a budget and strategize ways to pay off your debt while still building wealth.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: 5 Ways To Build Your Net Worth While Overcoming Debt