For an audio version of this post, please click on the speaker icon (top left).
Too often we equate high income with high net worth/wealth.
However this is often not the case as high income earners often carry higher levels of debt.
In order to make true progress along your path to wealth, you have to shed yourself of this debt which only serves to drag you down.
My financial epiphany came when I finally paid the last bit of debt I had on the books and shifted myself from the borrower side to the more favorable lender position in the lender-borrower financial equation.
The following is a guest post by Financial Wolves, a blog about making money with side hustles to help you achieve financial freedom.
Debt management is vital to your financial future.
The majority of us have one or more kinds of debt hanging over us at least once in our life.
Mortgage, car loans, student loans, credit card debt, you name it.
An average American has a debt of $38,000, and it only seems to be growing.
Debt Management for High-Income Earners.
If we learned anything from the financial crisis of 2008-09 is that those with heavy debts sink the fastest.
People are still recovering from the crippling debt that piled on them after they lost their jobs during the crisis.
No one would like to end up in this nightmare of a situation.
If you have a higher income than the median household income in the country or your state, you might be in a better position to make regular repayments or pay off your debt entirely.
However, the struggle is not quite over.
As a high-income earner, you’re likely to be subjected to higher taxes.
Naturally, your expenses would increase as well.
If your household income is considerably higher than the national median household income, which is $61,937, according to the US Census Bureau, you qualify as a high earner.
Here are some valuable tips for debt repayment:
1. Pay Off the Most Expensive Debt First.
As a high-income earner, you are probably positioned to pay at least some debt earlier.
Evaluate all the debt you owe and figure out which one is going to cost you the most.
It would most likely be your house or could be your student debt.
Debt with the highest interest is going to be the most costly.
Put most of your money towards paying off this particular debt.
This would ensure that you are not late in the repayments of this debt.
You can pay it off quicker by focusing and allocating most of your savings towards it, rather than all the loans combined.
2. Keep a Check on Your Spending.
It is only human to spend more when you are earning more.
It does not have to be the case, though.
This is a common mistake most people with high-paying jobs make.
Once they start making six-figure or above, they delve into a lifestyle that does not leave them much savings.
Remember, you still have to pay off all your debt.
If you have worked hard and climbed your way to making good money, do not let it get to your head.
Instead, be smart with the money and use it to get out of debt as soon as you comfortably can.
You are never making too much money to get small savings like cashback.
Even a small $50 reward can go a long way.
Do not upgrade to a bigger house if you do not need to.
Avoid getting a more expensive car.
Make it a habit to save first and then spend.
Not the opposite.
Saving is generally a difficult task as many of us do not learn about it from the start.
3. Debt Snowball.
Instead of paying off the highest or costliest loan first, the debt snowball approach targets the smallest one.
You make a list of all your debt from highest to lowest.
You put all the savings towards the smallest one, after paying the regular payments for others.
When you cross the smallest one off the list, you move to the one above it and repeat the process.
This approach can give you a sense of accomplishment and create momentum to repay all of your debt.
It also makes debt repayments and management a lot more manageable.
For instance, you had debt from five different credit cards, and taking the snowball approach, you paid off two of them.
Now, three credit card debts would seem easier than five.
4. Negotiate for Lower Interest Rates.
This is one weapon in your arsenal that can effectively reduce interest and let you repay all the debt on time.
You can negotiate the interest rate on your mortgage when you refinance the mortgage.
It is only worth doing if you are getting at least a whole percentage less in interest rate.
You can even ask for a lower interest rate for your credit card.
As a high-income earner, you can easily ensure timely payments of your credit cards, mortgage, car loan, or any other type of loan.
This will improve your credit score, and you can leverage it to negotiate lower interest rates on future loans.
You can also save significantly by negotiating monthly bill payments.
BILLSHARK is an automatic bill negotiating tool that can ultimately help you save and manage your debt better.
5. Invest Your Savings.
Instead of just keeping your savings in a bank account, why not use it to make even more money?
When you make more money, you can save up more alongside paying your debt regularly and living a comfortable life.
Traditional savings account offer very small interest rates.
There are a plethora of investment opportunities, some that do not even require a lot of capital.
Micro-investing apps are allowing regular people to invest in small amounts.
You can use this as an opportunity to supplement your income and pay some debts without an early repayment penalty earlier.
6. Debt Consolidation.
This is one approach to pay off your debt, or at least make it more manageable.
You can apply for a debt consolidation loan and may even get a lower interest rate.
For multiple credit cards, you can use a balance transfer credit card to roll multiple credit card debts in just one.
It is a viable way to reduce the burden and make debt repayment easier.
This usually requires a good credit score to qualify for a debt consolidation loan.
As a high-income individual with timely debt repayments, you probably have the required credit score.
Debt repayment is quintessential to ensure a stable financial future, not just for you but for your family as well.
More money can help you repay your debt faster, but more often than not, people are bad at handling debt repayment and end up accruing even more debt.
If you keep yourself informed, use all tactics you have, and maintain steady savings, you can be one of those lucky people who can retire on time with fewer worries.
Financial Wolves is a blog focused on helping you make more money to achieve financial freedom.
After repaying student loans, I’ve shifted my focus to make more money from side hustles, real estate, freelancing and the online economy.
Follow us on Twitter, Facebook and Pinterest.
If you are in search of financial help, please consider enlisting the service of any of the sponsors of this blog who I feel are part of the “good guys and gals of finance.”
Even a steadfast DIY’er can sometimes gain benefit from the occasional professional input.
NOTE: The website XRAYVSN contains affiliate links and thus receives compensation whenever a purchase through these links is made (at no further cost to you). As an Amazon Associate I earn from qualifying purchases. Although these proceeds help keep this site going they do not have any bearing on the reviews of any products I endorse which are from my own honest experiences. Thank you- XRAYVSN