Overwhelming debt weighs you down and adds stress to your life. Some debt is necessary; most people have a mortgage, and many have car or student loans. Debt with astronomical interest rates, such as those on credit cards or payday loans, makes it difficult to gain financial control. Once you prioritize your debts and pay them off, you will have a sense of peace and can start building savings and paying cash for unexpected expenses.
Examining Your Debt
Take a close look at all your debts. For instance, if you have a credit card that charges 22 percent interest, almost a quarter of your minimum payment is going against the original debt. If you make a minimum payment of $40, almost $10 of that is going toward the interest instead of reducing the debt. List the debts by the amounts you owe, and put the interest rates beside them.
Do the Math
Add up how much you are paying each month on the interest alone. Compare that with how many hours you have to work each month to pay the interest. This should motivate you to rid your life of this albatross quickly.
Decreasing the Debt
Decide which debt has the highest interest rate. If you have four credit cards or loans that have the same rate, look at the debt that has the smallest balance. Resolve to pay only the minimum amount on three of the debts until the one with the highest interest rate and smallest balance is paid off. Overwhelmed by the amount of debt you have? Consider speaking with a debt consolidation or settlement service. Unsure if that is right for you? Check out our review of the best debt consolidation and settlement services.
Budget Your Way Out of Debt
Cut corners wherever you can to save money to pay off your debts. Wise ways to save wasted cash are: Make your own coffee instead of visiting your favorite coffee house. Prepare your own lunch for work and do the same with your children’s school lunches. Buy your family’s favorite snacks in bulk instead of the higher-priced single servings. Spend a few minutes creating your own serving sizes by putting them in zipper-style plastic bags.
Apply this saved money to the debt chosen to be the first one eradicated from your life. Once this credit card or loan is paid off, you can use the extra funds to make larger payments on the second debt and continue until you have wiped out all your high-interest debt.
Following this plan helps you annihilate unnecessary debt that strains your wallet and drains your sense of security. Paying off high-interest debts enables you to stash money in emergency funds and savings accounts so you can reach your life goals.