How to Eliminate Debt Forever
Unfortunately, it is all too easy to get into debt. Buying things on credit and taking out loans are “great” ways to find yourself owing more money than you make.
Another sad reality of debt is that it can take minutes to build up, but years to pay off. When debt builds up, you end up paying regular monthly payments that simply increase every time you borrow more on credit.
If you aren’t careful, you can soon find yourself on a treadmill to nowhere.
The first thing you have to do to get out of debt is to stop spending more than you make. (I know, easier said than done, right?!) However, if you cut up your credit cards and go on a strict “cash diet,” you WILL pay off all your debt (provided you are making regular monthly payments that exceed the interest owed amount).
However, there are lots of clever “tricks” to help you pay off your debt quicker.
First, simply make a list of all the debt you have. This includes any loans, credit cards, financed items (i.e., your car or furniture) and your mortgage (if you’d like to pay it off early, too).
You should know:
1. How much you owe (the TOTAL amount) – itemized by creditors
2. What you pay every month
3. How many months you have left to pay
4. The interest rate you are being charged
Paying off the debt as quickly as possible:
There are several ways you can pay off debt quickly. Review the follow options to come up with the plan the works best for you.
Eliminate High Interest Debt First
The premise with this option is simple. Pay off your highest interest debt first. The one caveat to this if you are dealing with mortgage debt which is tax deductible (in the United States, anyway). Our interest rates here have been really low for several years, so odds are any credit card or unsecured debt you might be carrying will be at a higher rate than your secured loans. (This is just my opinion – but I wouldn’t even think of paying down mortgage debt until all unsecured balances (i.e. credit card) were retired.
Also, for some loans, creditors will charge the entire interest amount even if you decide to pay a loan off early. In that case, you are probably better off not paying that specific loan early. Simply focus your efforts on a different loan.
Pay Off the Smallest Balance First
If you take a look at all your loans and start paying extra on the smallest loan then this will be paid off the fastest. Once you pay this off, take the amount you were paying on that loan and use it towards paying off the next smallest loan and so on.
Get Rid of Your Biggest Monthly Payment First
With this approach, you simply target the largest payment you have to make every month. This may be the loan with the highest interest or the one the one with the highest balance. Once you put everything you can into paying this off your monthly payments will suddenly drop. Obviously, clearing the loan that takes the highest payment every month has the biggest effect on your bank balance every month.
Of course, the trick is to then apply that “extra” money each month to your other loan balances until you find yourself free and clear from debt for good!
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