It
is easy to slip into debt. We
use our credit cards to buy things, get loans for instant money, or we buy
goods on
credit.
Buying on
credit is quick, but paying off the debt can take years.
To
get out of debt, you must first stop falling deeper into debt.
No more loans, no more credit cards -- cut them up!
Then, make sure you make your regular monthly payments on all your
debt. This way your debt will
be paid off eventually.
Figuring
Out Your Total Debt
There
are many ways to pay off debt faster. However,
you need to know how much debt you have in order to decide what methods will
work for you.
To
compute your total debt, make a list of all your debt.
This will include everything that you pay to a creditor:
loans, credit cards, any financing you owe on cars or furniture, and
your mortgage.
For
each of these debt items, you should know:
1.
How much the debt is for or the total amount
2.
How much is you have left to pay off the debt
3.
What your monthly payment is
4.
The number of months you have left to pay
5.
AND the interest rate you are being charged
You
can compute your total debt by adding up the amounts of debt you have left
to pay off (number 2 above). Your
total monthly payments for your debts are computed by adding the number 3s
above. Now that you know
how much you owe and the minimum you must pay out each month to creditors,
you can determine a faster way to pay off your debts.
Quicker
Debt Pay-offs
There
are a number of ways to pay off your debts faster.
Which ones will be best for you depend on your particular type of
debts.
Reduce
the Total Balance and Reduce the Interest Rate Fees
Credit
cards and mortgages charge you a monthly interest (number 5 above) on the
amount of credit you still owe. If
you can pay more each month than the minimum required payment, the extra
amount you pay will reduce the total amount of debt so that you pay less in
interest. If you take a debt,
credit card, loan, or mortgage, that charges you the highest rate of
interest and pay more each month toward this debt, you will save money each
month. What
you save is the extra interest you would otherwise pay from the bigger total
amount of debt.
Once
you pay off this highest interest rate, you can target the next highest
interest rate. Generally,
credit cards have the highest interest rate and home mortgages the smallest.
You should leave the smallest interest rates till last, so you would
pay extra on your home mortgage only when all your other debts are gone.
Some
loans, however, charge you the full amount of interest even if you pay the
debt off early. Car loans are
frequently set up this way. Should
you have this type of debt, it will not benefit you to pay it off early to
save on interest so you may be better off paying off a different loan.
Smallest
loan Pay-Off
Another
way to reduce your debt is to pick the smallest loan you have and pay extra
each month to more quickly pay it off.
Once you pay off this smallest loan, use the same amount of money and
use it to pay off the next smallest debt.
Eventually, you will have all your debts gone except your mortgage.
Then, if you use all the money you were using to pay off these other
debts to apply toward your mortgage, your mortgage will be paid off faster,
too.
Biggest
Payment Pay-Off
If
you have money to pay off your monthly payments, and you have small debts
with fixed monthly payments, you can reduce the time and money to pay them
off by targeting the debt with the largest monthly payment.
This could be a loan that has the highest interest rate or biggest
balance. In addition to paying
your other monthly payments, put all you can into paying off this one with
the highest balance. Once paid
off, you will see an enormous difference in your monthly payments.
A
variation of this is to pay off the debt with the smallest number of
payments left. As soon as you
pay off that debt, you will notice the reduction in your monthly payments.
The
end result of each of these techniques is to provide you with more money
every month and to help you take control over your finances so that you can
pay off your debts. Paying off
your biggest payment each month will give you the most extra money in your
bank account. Paying off the
loan with the fewest payments left is the fastest way to get more money each
month.
Learning
from Debt
These
suggestions require paying off your debts by using the money you save once a
debt is paid off to pay other debts. This
is a clever method of using your money to speed up debt repayment.
To be successful in this, you must not get comfortable with your
remaining debt.
