The method is simple.
1)
Set a monthly amount.
2)
Pay all minimum amounts.
3)
Pay extra money toward the debt with the highest interest
rate.
This method will ensure that you pay the least amount of interest
and repay your debts as soon as possible.
The trick to paying the least amount of interest possible
is to pay extra money toward the debt with the highest interest rate. Obviously you want that debt paid off as
soon as you can. Each month it costs
you the most.
The trick to paying off your debts in the least amount of time
is to set a fixed total amount to pay each month. The trap many people fall into is that they only pay the minimum payments. These minimum payments are designed to keep
you paying that high interest rate for as long as possible.
By paying a fixed total amount each month, as one debt is paid
off, you will have more money to pay towards another debt. This is often called the “snow-ball” effect.
But first things first.
First, determine you ability to pay. If your total payments are much more than
you can afford, you are in trouble. You
may need to contact a non-profit credit counseling agency. You can find them in your local phone book
or online.
But be careful of companies that want an up front fee. Check with your local Better Business Bureau
for recommendations.
Next you need to make a commitment to stop getting further
into debt. Cut up your extra credit
cards or put them where you cannot easily get them. If you are living a lifestyle that depends on credit, you will
soon dig a hole you cannot easily climb out of.
Stop spending more than you make each month and don’t
count on future bonuses, inheritances, refunds or other non-dependable income to
bail you out. If you make $2000 a month
you can only spend $2000 a month. Look
for ways to cut back and purchases you can postpone or do without.
Now, let’s look at each step of your ultimate debt
reduction plan more closely.
First, determine how much you can afford to pay each month
toward your debts. At the minimum it
should be the total of all your minimum payments for the current month.
You may need to examine your spending for the last several
months. Find things you can eliminate
or do without for a while. Postpone
purchases, cancel subscriptions.
Anything to free up more money to pay off your debts.
You may even want to postpone investing for awhile. Are your investments beating that 18% you
are paying on your credit card? If not,
a better investment would be to repay your debts.
Once you have your monthly debt repayment amount set, you need
to write down each monthly debt you are paying. Record the creditor’s name, the current balance, and the interest
rate. Then take a separate sheet of
paper and reorder the debts so that the debt with the highest interest rate is
at the top.
Now as each monthly bill comes in pay the minimum payment. Subtract the minimum payment amount from
your set monthly total. After all the
bills are paid for the month, take any extra money left over and make another
payment on the debt at the top of your list.
You can make an additional payment this month or save the money
to add to next month’s bill. But don’t
spend it!
As each debt is repaid, cross it off your list, but keep paying
the total monthly amount you set at the beginning. This will accelerate your debt repayment and save you hundreds or
even thousands in interest charges.
The two keys to your ultimate debt elimination plan are to
1)
Stop getting further into debt
2)
Set your monthly debt repayment amount.
The rest is easy. You
will be debt free before you know it!
© Simple Joe, Inc.
David Berky is president of Simple Joe,
Inc. which sells the Simple Joe’s Debt Eraser PC software. Debt Eraser can help anyone get out of debt
quickly and inexpensively by creating Rapid Debt Reduction Plan.
See
Books on reducing personal debt
Check out a non-profit organization that can help you get out of debt.
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MSBJ Holdings LLC's editorial objective is to provide our readers with a forum for personal suggestions, investment ideas, and health & fitness recommendations. Our articles should not be construed as specific advice for the reader, nor does any article imply an endorsement by MSBJ Holdings LLC. Your best course of action must be based on your individual situation.
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