How to Pay Off Debt Smarter and Faster

If you now recognize that you must eliminate debt, whether credit cards, loans or both, it is time to take a dispassionate look at your circumstances and make realistic changes. If you hardly know where to start, you can follow a simple game plan that will enable you to bring your situation under control in a way that makes perfect sense while costing you less.

Instructions

1

Write down all your debts from highest to lowest interest rate, regardless of the balances. This may seem strange, but the higher interest rates actually cost the most. Also list the monthly minimum payments for each.

2

Add $10 to each minimum payment, which will become your new minimum payment for this plan. This may not sound like a lot, but if you compute this on an online calculator like bankrate.com, you will see that this $10 indeed makes a difference.

3

Calculate your monthly income and expenses. If necessary, look at your bank and credit card statements for the last three or more months. For each category, like electricity, fast food or medical, average out the costs from each month. This step will take some time and can be quite surprising. For example, you could find you were paying $40 a month in ATM fees. The most important thing is to be honest with yourself and your prior spending. It is crucial to see where your money is going.

4

Cut all unnecessary expenses and reduce others in light of your needs, not wants. It is doubtful that you need new shoes every month or a cable package with all the movie channels. However, if your job necessitates spending considerable time online, then paying for high-speed Internet is justified; otherwise, it is not. Almost everyone has expenses they can easily cut. Make sure to bring total expenses under total income.

5

Calculate the amount of extra money you have. Pay it all on your highest interest debt in addition to your new monthly minimum payment. This will dramatically reduce your repayment time.

6

Be patient and stick to the plan. If you failed to factor in the cost of dog food or another item, simply readjust the plan as necessary. If you can't afford an extra $10 on each minimum payment, just pay the original minimum payment on the lowest interest rate debt. Just continue to pay or you will bury yourself in debt.

7

Rejoice when you have that highest interest rate debt paid off because you are that much closer to paying off all your debt. Your next move is to apply everything you were paying toward that debt the original minimum, the $10 and any extra toward the next-highest interest rate debt. Most likely, you will now be making a sizable payment which you will pay down that much faster..

8

Continue with this strategy. You should continue to pay the same total amount throughout. If you started this month applying $750 toward all debt, then continue this amount until the final month. Never reduce the total amount because it will prolong your repayment and cost you more to pay off.

9

Celebrate when you have completely retired the debt. With the $750 now available to you each month, maintain your self-discipline and start saving for emergencies, big purchases and retirement. Thus, instead of financing a big-screen TV when your old one breaks, you will now have savings so you can pay cash. Now is always the best time to begin saving because compound interest begins when you do. Try to limit all debt you assume now, since you have worked so hard to clean your slate.