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When you have a lot of bills for loans and credit cards on top of all your regular expenses, the idea of paying off your debt can be overwhelming. To get your debt under control, you need to start small. Pick one debt and stay laser-focused on paying it off, and you’ll build confidence and momentum as you reach your goal. Here’s how to knock out that first debt.
The faster you pay off a debt, the less interest you pay in the long run. Start with the debt that has the highest interest rate, since knocking it out will save you the most money. The one exception to this rule is with tax-deductible debt; mortgage and student loan interest are often deductible, so they’re not as toxic as your other consumer debt.
If you pay the minimum required on your credit card, you could be paying for your fancy stuff for years after it’s gone out of style. Paying the minimum on a loan means being stuck with the monthly payment until the last possible date. Make every effort to add some extra cash to your monthly bill payment. Even just $50 more each month can make a big dent in your debt, save on interest and get the bill paid off much faster.
To make those extra payments happen, decide right now what you can live without. It doesn’t have to be big; in fact, it’s best to make sure it’s a manageable change that doesn’t leave you feeling deprived. Is it one take-out dinner per week? No more Starbucks on the ride to work? Paring down to basic cable? It doesn’t matter what you cut. The important thing is that you know exactly how much money you’re saving each month so you can add that amount to your debt payment. This way, your savings won’t be lost in the shuffle; you’ll be committed to that extra payment instead.
Pay off next debt: What do you do when your debt is finally paid off? Take the monthly minimum payment, plus the extra payments you were making, and immediately start adding that as the extra payment to your next debt. That next one will get knocked out even more quickly, and soon you’ll be completely debt-free. If you stay focused on one debt at a time, you can make it happen. Debt relief companies, like National Debt Relief, can also help you consolidate or settle your debt.
Reduce interest rates: If you have paid off some debt already, you may notice your credit score start to increase. Use that as leverage to negotiate a lower interest rate with the credit card companies that you still have debts with. If you want to raise your score even more before negotiating, look for the best credit repair company you can find to help you get rid of negative items on your credit report. Some of the negative items from your previous debts may be able to be negotiated off your report.
Create a nest egg: If all your debts are paid off, it’s time to start putting that extra money aside. Most people’s first instinct when their debts are paid off is to celebrate by using those debt payments for a vacation or a new car. That’s how you fall into debt again. Take the same debt payments you were making and put them in a savings account or retirement account to build a nest egg, which will also keep you out of debt.