Tips for paying down debt
Debt has a way of quickly becoming unmanageable. As bills pile up and people scrape by just to meet minimum payments, sometimes it seems like the only option is to miss payments or, in extreme cases, file for bankruptcy.
However, these are not attractive options. If you miss your scheduled debt payments, you risk killing your credit rating, which puts you at a severe disadvantage. Not only will you find it difficult to get any type of loan, but you'll find that your credit score can influence other things, such as your insurance rates. This is why it is so important to pay down your debt.
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While there are of course extenuating circumstances, such as a loss of a job or medical bills, debt is often the result of poor spending habits or inadequate financial planning. The following are some tips for paying down your debt:
Do not incur more debt
The first thing you will want to do is make a promise to yourself that you will not incur more debt. This could be in the form of taking money out of your retirement plan or opening up new credit cards. Credit cards are easily obtained, even for people who have poor credit. However, this is often the beginning of debt problems for most people. The average American has around $8,000 in credit card debt, but it's the interest that is the killer-credit card interest rates can be up to a whopping 25%, and last year Americans paid over $50 billion in interest charges.
Decide what debt you want to pay off first.
Next, you will want to decide which debts you would like to pay off first. This is mostly in relation to credit card debt. They should be a priority over student loans or other very low interest loans. Which cards you want to pay off first are ultimately up to you, and there is a difference of opinion on which should be tackled first.
Many people will recommend you pay off the credit card with the highest interest rate, since ultimately it ends up costing you more money. Others suggest paying off the one with the lowest balance, because it can be a morale booster and get one payment out of the way. Both of these types of cards are good to get rid of first. You should also try and pay off those cards that are close to their limits. Maxing out your cards can make you more prone to penalties, and they can also damage your credit score.
Pay more than the minimum balance.
One of the quickest ways to pay off your credit card is to pay more than the minimum balance. Even if it's just $5 or $10 extra a month, that can help you cut down on the interest and pay your balance off quicker.
Look where you can cut costs.
If you're barely able to make minimum payments now, get your debt under control so you won't be ruined if you miss a payment. Stop eating out, or cancel cable for awhile, or see if you can get by with just one car for awhile. These things may be a sacrifice at first, but in the long run, you will be able to pay off your debt and start saving money.
Paying down debt is important to your financial freedom. The above are a few tips for paying down your debt.
