How to Repay Debt

When you have outstanding debt there are several ways to go about repaying it. The way you pay your debt will determine the shape of your credit score and it will establish how long you will be in debt. Establishing an effective and efficient repayment plan will save you money in terms of the amount of finance charges you receive on a regular basis. Some forms of credit don't have clear cut repayment plans. In other words you don't know when the debt will be paid off.

Instructions

1

Determine how much debt and how many creditors you have. Once you have all of your creditors listed on a single page you can determine how you will repay them. List the creditors from smallest balance to largest, and each monthly payment as well as the interest rate should be listed as well. When you have all of the information for your debts you can decide how you will pay. You may decide to pay off accounts based on the various categories such as balance owed, interest or monthly payment. Calculate which category works best for you. Sometimes you may want to eliminate the account with the largest monthly payment or the highest interest rate. One method is starting with the lowest balance owed first.

2

Pay off your debt by balance owed. Start paying your debt based on the smallest balance owed. When you have paid off your first balance you feel a sense of accomplishment. You can mark this balance off your sheet and you get the feeling that you are making immediate progress. This form of payment has a psychological advantage.

3

Increase your payments. When you have paid off a debt, add the monthly payment to the payment for the next credit card account. For example if your monthly payment was $20 for an account which you just paid off you would now apply the $20 to the next account balance plus the payment already being paid. Continue this process until all of your debts are paid. Always pay as much as you can. Never limit yourself to the minimum payment. This process saves you money in finance charges.

4

Apply bonuses and other income to your debt. If you receive a tax refund, or bonus or incentive or even work overtime, take that money and apply it to your debt. This will help reduce your debt a lot faster and move you quickly towards a financial goal of being debt free.

5

Consolidate your balances. Look for balances that have high rates of interest and try to consolidate them with a lower interest rate. There will be a balance transfer fee but you should be able to save money in finance charges by combining your debt.

6

Pay all debts on time. When you pay on time you avoid late fees and you help your credit score. Approximately 30 percent credit score is your pay history. An on-time payment history allows you to receive lower rates of interest in the future.

7

Pay your debts online. When you pay online you save time and postage stamps. Payments are posted the same day, in many cases, to your account. There is no delay from mail time. Make payments twice per month. When you pay your debts twice a month you pay them off faster and save money with finance charges. Always pay your entire balance when your statement is received if possible.

Use a credit card calculator. If you have a large credit card balance key in the information such as balance, interest rate and the number of months you would like to take to pay the debt off. This gives you peace of mind knowing that you have pinpointed a specific target date.