Paying Off Debt – Three Different Ways

Paying off debt can be a long process. It can also be overwhelming. It is easy to beat yourself up. Feeling regret or bad for yourself can lead to even more debt. It is important to figure out what got you here in the first place. Was it just a one bad decision that blew up in your face? Was it a string of bad decisions? Is it a bad habit? Now that you’re here, you have to get out. You CAN get back on the path to financial prosperity. It requires a plan and great commitment.

Create A Budget & Begin Paying Off Debt

First things first. Create a budget that you can stick to. It is important to get all of your expenses, bills and spending written down. You will likely need a strict budget to reach your goals. However, it is important to allow some money above and beyond “needs” for spending. This small amount of spending money can help you to stay on track. Before you can apply one of the methods for paying down debt, you must get on a budget. There are many sample budgets online. This includes some from popular personalities such as Dave Ramsey or Suze Orman. There are also many templates available to download in Excel. There are also apps for your phone. Find one that works well for your lifestyle. Now, let’s get started paying off debt!

Snowball Method – Rank By Interest

Begin by listing all of your debts in order of their interest rate. Put the highest interest debt at the top. Hopefully if you have a mortgage, it has the lowest interest rate of any of your debts. List the minimum payment of each of these debts. Pay ALL extra income (even if it is only $20) toward the debt at the top of your list. When that one is paid off, take the extra you have been paying. Add it to the minimum from that first debt. Then add that amount to the minimum payment on the second debt. Pay all of it toward your second debt. Then keep on going! This is the quickest way to pay off debt.

Snowball Method – Rank By Size Of Debt

In this version of the snowball method, you rank your debts in order of size. Smallest to largest. Regardless of interest rate. Technically, you will pay more money on interest. However, many people find this method more rewarding. Within the first few months you may pay off three debts. This differs from the interest method. With the interest method your first debt may be thousands of dollars. It would take a long time to pay off. You may find it easier to be motivated with the size method. Paying off debt can be a long process. Staying committed is the name of the game.

Consolidate Your Debt

Combining your debts can be an easier or cheaper way to pay them off. We recommend steering clear of companies that claim they can eliminate your debt. However, there are reputable ways to combine your debt. For instance, a few high interest credit cards could be moved to a lower rate credit card. This may mean closing out some of those original cards. You may be able to get a lower rate personal loan to combine your debt. Or you may be able to get a home equity loan. Many of these options require good credit. Be very careful before working with a consolidation company. Proceed with GREAT caution. A quick Google search can show you some horror stories.

Treat yourself well. It doesn’t help to beat yourself up! Above all else, don’t get anymore debt! Join some forums and follow some blogs on paying off debt. There are also many free podcasts. There are many people going through the same thing as you. Their stories and online support can be a great motivator for you.

If you have questions about paying off debt, we can help guide. You can do it!