Tips to Pay Off Debts

As the old adage goes, "The worst part about being poor is that it takes all of your time." Though being in debt and being poor aren't necessarily one of the same, it's hard to get a head start in the world when a large chunk (or all) of your income goes right out again. While some debt is unavoidable, there are ways to help ease the pain of debt, and to take the edge off.

Types

There are many types of debt: personal loans, student loans, credit card debt, medical bills and car payments, among others. The worst debt is that with a high interest rate, which tends to be store credit cards, standard credit cards with a high APR and those where cash advances were used.

Identification

The first step is to find where your money goes. You should have a pretty good idea how much comes in and how much goes out, so it's just a matter of knowing exactly where it goes. See what can be eliminated or downgraded. For example, if you're single and have two cars, that means two car payments, two insurance payments, etc. Eliminating one will help reduce your monthly expenses. Do that with every bill; do you really need every premium channel on cable? Is unlimited minutes and texting on your cell phone necessary? Do this with every bill that goes out, and you'll be surprised how much you can save.

Considerations

Make a plan that determines which debts to pay off first, and stick with it. Although common sense tells us to pay off the highest interest bills first, paying down the debts with the highest monthly totals can free up money faster. Then that extra money can be used to hack away at the stubborn, high-interest debts. Taking out a low-interest loan to pay off high interest credit cards is a good idea, provided that you don't rack up the credit card debt again.

Prevention/Solution

Although it's hard to plan for some things in uncertain times, the best way to avoid debt is to live within your means. Projecting today's riches over the next several years is a recipe for financial disaster, as the bonus that finances your car loan, country club membership and timeshare might not be happening next year. Provide a cushion in your savings account, and if things go south financially, prepare yourself to be able to get out of long-term financial commitments. Quickly.

Warning

Downgrading your expenses, moving to a less expensive apartment and working a second job are all great ways to help pay off debts, but many use that as an excuse to spend even more. Resist the temptation to do this, and cancel all but one credit card once they're paid off. Slaving at chipping away at debt is hard enough, so it's not something you want to do more than once in a lifetime.