How to Pay Off Debt
If you are like most Americans, you probably have a little bit of debt. The average American actually has at least $8,000 in credit card debt. What about your debt to your student loans, your mortgage, your cars? We live in a society that is taught to spend and live well beyond our means. People constantly purchase homes that they really cannot afford and this causes them to have an expensive mortgage and so they turn to credit cards and personal loans just to get by. Debt literally suffocates a person and you can't do anything about it expect work hard to pay off your debt. Here are some tips to follow to help you pay off debt:
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Tip # 1 - Pay more
When it comes to paying off debt, you need to pay more than the minimum balance. When you only pay the minimum balance that is due, you are only getting a small portion of the payment to go toward the principle; this causes you to be in debt longer. If you have $10,000 in credit card debt and you only pay the minimum, you will end up paying almost $30,000 in interest and it could take you 20 years or longer to pay off your debt. Try to pay double what your monthly minimum payment is, this way you will have more money to go toward the principle and it will get you out of debt sooner.
Tip # 2 - Sacrifice
You are the reason you are in debt so you are the person that needs to work hard to get out of debt. You can make sacrifices to pay off your debt. Instead of eating out, cook at home and use left-over's for lunch. Cancel the satellite television and your cell phone; this will easily save you around $200 a month. Learn how to live below your means if you are serious about paying off debt. When you can make sacrifices, you will be able to get the extra money you need to put toward your debt. Even paying an extra $10 a month toward your debt will reduce the balance and get you out of debt sooner. That extra $10 a month is $120 a year, which is a pretty good amount if you have a lot of debt.
Tip # 3 - Have a plan
When it comes to paying off debt, you need to have a plan as to how you are going to get out of it. Here is a sample list of some debt you may be carrying:
- Car Payment - $ 7,300 at 6.7% interest
- Credit Card # 1 - $7,750 at 12% interest
- Credit Card # 2 - $650 at 6% interest
- Personal Loan - $6,000 at 21% interest
- Student Loan - $3,200 at 4% interest
Create a debt picture and start looking at the debt you can pay off the quickest. Since your student loan has the smallest interest rate, you won't pay as much money over the life of the loan as you do with the credit cards. Look at the balance, credit card # 2 has the lowest balance and if you start paying an extra $50 a month toward it, you will pay that off the soonest. When it comes to debt, you never want to carry more than 30-50 percent of the total balance of your credit card limit. Carrying a high balance will significantly hurt your credit and it will be hard to fix your credit. If you qualify for a lower interest rate credit card, transfer the balance from a higher credit card or personal loan to it. Paying for one year at 0 percent interest will help you pay off your debt a lot quicker and you will be able to breathe again.
