- Figure out exactly how much you owe. Not only the amounts but to whom and on what terms. Make a table that includes the interest rate you’re paying, the minimum monthly payment any incentive you’re offered if you pay faster. Ask if there will be any penalties if you pay early. While the numbers may feel overwhelming when added up together it will give you control over the situation and get you started.
- Pay off the debts with the highest interest rates first. If you have more than one that falls into this category, figure out how much you need to pay on each debt every month in to pay them off fast. Often paying off the small debts in full (under $500.00) can also be a good strategy. This will leave more cash flow to divide between the larger debts.
- Pay more than the minimum each month. The higher your monthly payments, the less you will pay in interest payments. You must pay at least 3 times the minimum in order to be able to pay off your debt in under a year.
- Create a budget and stick to it. How extreme your budget is depends a lot on the amount of debt you have. If you have a large debt, your budget should cover just the bare necessities (rent or mortgage, utilities and food). Anything else should either be eliminated or reduced considerably.
- You may want to consider part time work for a short period of time to add extra income to your budget. When budgets are tight it’s a good solution. Do you have an extra car you can sell, or other items you no longer use. Would a Yard Sale give you extra money?
- Learn to live without luxuries. Reduce haircuts to every 5 weeks instead of 4, watch a movie at home with family, cook in batches to eliminate eating out when things get busy and start shopping at discount stores rather than getting brand name merchandise. While these may sound like small things, every cent adds up. If you make paying off your debt a priority, then every penny counts.
- You may also want to consider a debt consolidation. But remember, you must increase the payments so that you don’t just stretch out your debt within this new loan or mortgage. A rule of thumb would be to pay twice what the minimum payment would be.
- If you have a lot of debt you will still likely not pay as much as you are paying right now.
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