Strategies to Pay Down Debt
If you are interested in getting out of debt you may need to work on a number of strategies to make paying off your debts easier and so that you can tackle them more quickly. It is important to realize that no matter what strategy you choose, you will need to address the issues that got you into debt in the first place. You can use all of these strategies together or you can implement one or two at a time.
First Get on a Budget
One of the first things you need to do is to set up a solid budget that you can follow each month. This is key because it will stop you from going into debt each month. It is difficult to get out of debt if you are continually adding to the debt. Your budget is biggest and most important tool to help you get control of your finances. Once you have set up your budget, and found extra money to put towards your debt you can begin to get out of debt much more quickly than just paying down the minimum amounts.
- Your budget will help you find more money to put toward debt.
- It can help you stop going into debt each month.
- Gives you control and allows you to set your spending priorities.
Set up a Debt Payment Plan
The basics for setting up your debt payment plan involve you writing down the amount you owe, the interest rate and the minimum payment for each debt. Then list the debts in the order you want to pay them off.
You can do this from the highest interest rate to the lowest or from the smallest debt to the largest. You can use a debt calculator online or a service like SavvyMoney that will help you see how quickly you can pay down the debt by increasing the amount you pay towards debt each month. The more you can apply to the debt, the more quickly you will be able to pay it off.
- Focusing your extra money on one debt at a time allows you to pay off debt more quickly.
- Raise extra money by selling items or working an extra job to speed up the process. Taking the time to set up a yard sale or listing items on eBay can make a big difference.
- Make paying down your debt your priority.
Lower Your Interest Rates
Lowering your interest rates means that more of your payment goes directly to the principle of the loan rather than to paying on interest. There are a few options you can consider. One is to transfer credit card balances to one that is offering a temporary zero percent interest rate. This will help you save a lot of money over the year, as long as you are focused on paying off the debt. Another option is to take out a consolidation loan. I do not recommend cashing out your home equity to do this. If you do a consolidation loan, you want an interest rate that is lower than the rate you are currently paying and one that is set. If you choose either of these options, you need to stop using your credit cards immediately so you do not add to your debt and end up in a situation where you owe even more than you do now.
- Consider asking your bank for a lower interest rate on your credit card. Some banks may be willing to lower the interest rate.
- When moving balances between credit cards be sure to look for the lowest transfer fees available and try to pay off the card s quickly as possible.
- Be sure to read the fine print when applying for a consolidation loan, since interest rates might change.
Credit Counseling and Debt Settlement Services
If you are really having a difficult time making your payments then you may want to consider a credit counseling or debt settlement service. These services do show up on your credit report and should be a last resort before bankruptcy. The credit counseling service is better than debt settlement. You need to be careful about the company you choose to deal with, since many of the companies will suddenly close overnight and take your money with them. You can negotiate debt settlement yourself if you are already behind on your payments.
If you settle debts, it will affect your taxes, and you need to be prepared to pay taxes on the amount that is forgiven.
- Debt settlement is only a good option if you are already behind on your payments.
- Credit counseling may help you with a budget and working out a payment plan.
- Be sure to carefully research the companies you are considering using. some companies are legitimate, but some are not and may end up taking your money and not helping you at all.
Staying Out of Debt
Once you have worked hard to pay off your debts, you need to work hard to stay out of debt. This means you should continue to budget, and that you need to plan for the future. Setting up emergency funds and sinking funds should help you to deal with unexpected expenses and for car repairs. You will need to create a solid financial plan that plans for expenses like purchasing your first home and retirement. Although you may not want to continue paying attention to your budget, and your money, you will need to do so if you really want to do well financially.