How Budgeting Tools Help You Achieve Faster Debt Payoff
In January 2022, the average American household owed $155,622 in debt. This number included credit card debts, car loans, and mortgages, to name just a few of the most common expenses. And if you're like most Americans, six figures is often the point where debt goes from manageable to intimidating. What if we told you that debt payoff could be as simple as logging on to your computer and pressing a few buttons?
How would your life change if you never had to live from paycheck to paycheck ever again?
Budgeting tools aren't just a nice idea — they could be your ticket to becoming debt-free in record time. Want to learn how? Keep reading to find out.
Why Is Debt So Hard to Pay Off?
According to the U.S. Government Accountability Office, 71 percent of older American households were carrying debt. And to make matters even worse, median debt levels for this age bracket were over three times higher than they had been in 1989.
The question here is, why?
Presumably, these older adults had been in the workforce for decades and had plenty of time to pay off debts before retiring. How come their debts seem to have ballooned instead? Here are just a few of the reasons why so many people have such a hard time becoming debt-free:
1. People Don't Know How Much They Owe
According to U.S. News, 21 percent of consumers aren't sure if they have credit card debt. Meanwhile, another 30 percent don't know how much they're paying in credit card interest each month.
You wouldn't hunt for treasure or go on a road trip without a map or a GPS. And the same concept applies to your debt repayment. With debt balances constantly going up as they remain unpaid, it's easy for your personal finances to spiral out of control.
2. Lifestyle Creep
"Mo Money Mo Problems" isn't just the title of a famous rap song — it speaks to a personal finance phenomenon that naturally happens to most people.
When you're in high school or college, getting by on a $20 grocery budget is the norm. But once you enter the workforce and start earning a five or six-figure income, suddenly, your living standards change.
You can afford to eat steak or purchase a house. You can purchase tickets and book a flight to Hawaii with your credit card. As a result, even though you're making more money, you still don't have a lot of disposable income compared to your college days.
This is what's known as lifestyle creep. And if you're not careful, maintaining a more expensive lifestyle can make it harder to pay off your debts.
3. Interest Rates
Remember what we said earlier about 30 percent of people not knowing their credit card interest rates? This is devastating financial news because interest rates are capable of turning a $1,000 debt into a $1,200 or even $1,800 debt.
Credit card interest rates, in particular, are known for being high. But mortgages, car loans, student loans, and lines of credit will also require you to make interest payments. If you go into debt while thinking mostly in terms of the principal amount, the interest-related debt can take you by surprise.
4. Budget Shortfalls
It's long been said that budget problems fall into one of two issues:
- Spending problems
- Income problems
This can put a lot of Americans in a financial catch-22. But you don't have to take our word for it:
According to research, 34 percent of Americans who don't budget say that it's because they don't make enough money to do so. However, 88 percent of the people that do budget said that budgeting helped them manage or get out of debt. If you're earning money, but you're always behind on certain bills, you may need to troubleshoot your budget.
How Budgeting Tools Can Speed up Your Debt Payoff Timeline
If that list of problems looked a little too familiar, we've got some good news. Budgeting tools are an invaluable resource for Americans who want to get out of debt. Here are just a few of the main benefits that come with using software to manage your budget:
1. It Reinforces Good Financial Habits
Spending and saving money is like working out. You can't expect to break Olympic records or bench press 300 pounds without ever setting foot in the gym. Personal finance is similar in that it takes long-term discipline to build a savings account while remaining debt-free.
To that end, budgeting tools can help you establish financial rules. Over time, saving money will become second nature to you. But as you build your financial muscles, budgeting software can help you find your footing.
2. It Can Make the Calculations
Have you ever mistimed or forgotten about a payment? Are there certain expenses that take you by surprise every month?
People can be forgetful, and dates can be misremembered. But your budgeting tool can automatically calculate your payment amounts down to the penny. As you work your way back to financial stability, this element of precision can save you from overdraft payments and penalties.
3. They Centralize Your Financial Information
When you've only got one bank account, keeping track of your payments is easy. But for many Americans, their monthly finances are spread across several financial institutions and lenders. Here's what we mean:
Let's say you've got a mortgage, a Netflix account, and a gym membership. If the mortgage comes out of your bank account while Netflix and the gym membership come off of your credit card, you'll have a harder time tracking those payments across multiple accounts. And if you happen to have a separate savings account for property taxes or emergency savings, things only get more complicated.
One of the biggest advantages of a budgeting tool is that it can help you make sense of your finances with a single glance. There's no messing around with spreadsheets and multiple passwords. All you have to do is log in to a single account.
4. They Help You Find Savings Opportunities
Now more than ever, it feels like the price of everything is going up. And when your bills and groceries have you scraping the bottom of your bank account every week, saving can seem impossible.
While entering information into your budgeting tool, you have a unique opportunity to list your expenses all at once. Maybe you've got a gym membership you don't use, or perhaps you've been overlooking your grocery savings opportunities. Sifting through the current state of your finances can give you the information you need to create an aggressive savings plan.
The 3 Qualities That Every Top-Notch Budgeting Software Should Have
Okay. So you've decided to pay off your debts, and you're convinced that a budgeting tool is your best chance to do so. How do you know you've found the right budgeting software?
Here are three features that every winning budgeting software will have:
1. Budgeting Flexibility
Not everybody has a few thousand dollars sitting around for retirement planning, investments, and debt repayments. If they did, nobody would ever be in debt.
A high-quality budgeting software should be able to come up with a debt repayment strategy that makes sense for your budget. Whether you've got a ton of financial obligations or you're working on your finances one step at a time, your tools should be able to meet you halfway.
2. Multiple Debt Repayment Options
Are you the type of person who likes to experience fast and easy wins? Or are you all about reducing your interest payments?
In light of the debt snowball vs. debt avalanche debate, many people don't realize that there isn't necessarily a right or a wrong way to repay your debts. It all comes down to what you can be the most consistent with.
If you like quick and easy wins, starting with the highest-interest debt might not work for you. For this reason, the software you choose should have multiple debt repayment strategies built into it.
3. An Easy-to-Use Interface
If this hasn't happened to you, it's definitely happened to someone you know.
You're downloading a game or checking out a new app. But after attempting to use the new software you've just downloaded, you can't help but feel like you need a Ph.D. in Computer Programming to make sense of the UI.
For most people, debt repayment calculations and financial planning are complicated enough as it stands. Your budgeting software should be so intuitive and easy to use that the words "I can't believe how complicated this is!" don't have a chance to cross your mind.
Create Your Debt Payoff Plan With a Debt Payoff Tool
On paper, paying off debt is basic Personal Finance 101. But research shows that Americans are struggling to pay off debt more than ever.
In many cases, it's not because people don't want to be debt-free. The issue often comes down to finding the right tools.
You wouldn't use a hammer to screw in a lightbulb. And you shouldn't be relying on overly complicated systems for your finances.
Our budgeting software is designed to take the stress out of saving money and repaying debts. With our web-based tool, your debt payoff plan will come together in less time than you think. Start your free trial today!