Like most people, you have experienced the bitter taste of debt or else you probably wouldn’t be reading this article. Hey, that’s ok, I have gone through it as well. Many times, in fact. Through my experience I have found several key ways that make debt much more manageable and eventually removed from the financial picture. Here is a quick look at my paying down debt strategies:
- Stop further debt
- Which debts have the highest interest
- Which debts have the smallest balance
- Budget for extra repayment
If you work through these steps then I’m 100% certain you will work through your debts in the most efficient and effective way possible to you. Now, let’s get started!
Stop Further Debt
This might seem like a no-brainer, but there is an astounding percentage of people that are in debt, realize they are in debt, and still continue to accrue more debt. You can not turn a blind eye to debt or you will fall into this same pattern of digging the deeper ditch. Prepare a budget for yourself, and to do so I recommend you find a program to help you do it. As for which program, I use You Need A Budget and have been very impressed with what they offer for keeping your budget. There are many options though, so you can look around and find one that fits your needs. Get your budget set so you can pay at least the minimum for your monthly debt payments.
This might mean cutting out a lot of your entertainment stuff. I had to remove all my monthly subscriptions, which included my beloved Loot Crate! Really though, you need to stop the bleeding if you want to get out of this situation and if the budget still isn’t looking so great, you might have to consider getting a second income for at least the short term. Just do what it takes to get your life out of the red and back into the green.
Which Debts Have the Highest Interest
After you have your expenditures weighing less than your income you can look at which of your debts have the highest interest. This is usually credit cards or maybe even one of those extremely high interest personal loans. List them all out and order them from highest interest to lowest interest. Also, write down each of their minimum payments next to each one and the balance due for each one. Now in most cases you are going to want to tackle you highest interest item first. This is almost always the way to go since in the long run those are the ones that are costing you the most. There is however one alternative that can be used in some cases…
Which Debts Have the Smallest Balance
This is why I also wanted you to list out each items remaining balance. There are some cases where you will have an item with a fairly low balance and a fairly low interest rate. If this is something that you can knock out in 1 to 3 months, then go ahead and target this one first. Just get it out of the way! This will feel like a small victory, because it is, and it will help motivate you to keep working on those clearing those debts.
Budget for Extra Repayment
Like I said earlier, you need to make sure that you are at least able to make the minimum payment for each item you have debt on. By doing this, you will at least stay afloat and very slowly chip away at those debts, but this isn’t a very efficient way to do things. Ultimately you want to be able to pick one of these debts, either the highest interest or the smallest balance, and pay extra toward it. Doing this will place more of your money towards the debts principle so you aren’t burning so much up each month in interest, and also get it paid off faster of course. This is pretty straight forward as long as you can budget to do it. Don’t deviate from this repayment plan, no matter what!
Now here is the big secret to getting these pesky debts cleared out fast. Once you have closed out your first debt, take the money you were applying towards it every month and begin applying it to your next high interest or small balance debt. You will then close that debt out a little faster than the first. Just keep rolling your debt repayment money over to the next debt and eventually you will be paying these debts off extremely quickly. I know from my own experience, this sometimes took a debt that would have taken a year or more to pay off with minimum payments, only a couple of months to pay off using this technique. Not only did this free up more money for me to save and use for fun stuff, but also it saved me so much in interest, which is basically the same thing as taking your hard earned income and throwing it in a fire by the shovel full!
One thing I would strongly recommend once you have finished paying off your debts is to budget some of this newly freed up money for a savings account. It could be an emergency fund or a rainy day fund, or whatever you want it to be, but just get some of your money saved each month so you hopefully don’t have to taste debt again.