Paying down debt, most effective strategies
With consumer debt at an all time high more information then ever is being released to the public on how to deal with debt. Americans are now reported to carry a credit debt on average of $9000 dollars. There is very little savings going on as many people struggle to just make their minimum payments. There are multiple strategies purposed by every type of financial planner. The burden of debt may be overwhelming to begin with so wading through the options available may seem like an insurmountable task. We have attempted to clarify some strategies here to help lighten the debt load and hopefully pay it off! Here are just a few-
1. Consider the debt itself. Experts recommend listing all debt, interest rates, minimum payments and balances owed. Once this list is made the consumer can then see the full picture of what debt is owed. Many people choose to use a chart format for this type of exercise since it gives a pretty clear picture of the debt. Once the debt has been listed there are basically two schools of thought on how to attack the problem. The first type of debt payment involves paying off the credit card or debt with the lowest balance. This is done to give the consumer a boost in making headway on paying off debt. This is done based only on the balance not the interest rate or any other factor. The second method of paying down debt considers the interest rate of all of the debt. Payment is based on the highest interest rate. The card or debt with the highest interest rate is paid off first. This is done because this debt is costing the consumer the most to carry. Both methods advocate the "power payment" method. This is how it works: after choosing the debt that is to be paid off the minimum payment is made plus whatever else the consumer can afford. So if the minimum payment is $50 and if the consumer can add even $10 dollars than the new minimum payment becomes $60 until the debt is paid off. Then the $60 from that debt is transferred to the next minimum payment for the #2 debt that is being paid off. This continues in a snowball effect until all the debt is paid off.
|
|
2. It is important to be looking at debt with the strategies of what to use to pay it off. This can be done in several ways. Income can be generated from a second job. Many people have turned to eBay or other online sites to sell unneeded belongings to help generate money to pay down debt. Expenses can be cut or eliminated and free up money to be used for debt reduction. Sometimes reallocating money within the budget can help pay off debt faster as well. Even in this market with slightly rising interest rates many people are turning to low interest home loans in order to pay off debt. This is not always a successful strategy though since many people get themselves back into credit card debt after paying it off with a home loan.
3. For those with significant credit debt there are credit counseling agencies that can help. These agencies can work with your creditors to help reduce (or sometimes eliminate) debt that has become overwhelming. The typical consumer receives a payment plan from the agency that includes one payment that is then allocated to all the creditors. This payment plan generally includes reduced or eliminated interest on all debt involved. A note of caution must be included here as the consumer must be careful to use a reputable agency to help with this kind of debt restructuring. Ask for references and check with your Better Business Bureau before signing any contracts. When done correctly this can be an effective strategy for paying down debt.
