Wednesday, March 28, 2012

How to Handle Short-Term Debt

When you have short-term debt--debt that you must repay within a year--the clock is ticking on making your payments. Because you don't have much time to pay it off, your payments probably will be much larger than if they would be if you were paying off the debt over a longer period of time. You might need to tighten your belt a bit, but you can handle short-term debt with basic financial management. Focus on your financial goals in order to pay off short-term debt.



    Set up a payment plan. Your creditor sometimes will do this for you, but in some cases--such as when you make a large purchase at no interest for the first year--you'll have to set the payments yourself. Decide whether you want to distribute the payments evenly or whether you want to pay more at the beginning or end.


    Reduce your expenses. With a short-term loan, you want to apply as much money as you can toward paying it off. To do this, you should try to reduce your expenses for the duration of the loan. For example, you could cook meals at home instead of eating out or find free activities to do instead of going to the movies.


    Apply all extra money to paying off the debt. When you cut back on your costs, be sure that you use the extra money to pay off the debt. This will decrease the time that it takes to repay your loan.


    Consider whether you should consolidate your debts into one payment. If you have several short- and long-term loans that you are trying to repay, it might make sense to consolidate your loans. This allows you to make one easy payment and might spread out the loan over a longer term.


    Consider whether you should refinance your home to include the short-term debt. If you're worried that you won't be able to pay off the short-term loan on time, you might be able to refinance your home to get the money that you need. If you use your home equity to pay off the short-term debt, the money will become part of your mortgage payments.


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