When it comes to the best techniques and ideas for paying off debt, there are about as many out there as there are chocolate chip cookie recipes. And while it may take a few recipes until you find the tastiest one, finding the best fit for you when it comes to debt payoff may also take a few tries.
When you break it down, there are really three basic ways to pay off debt:
Highest Interest Rate
Concentrating your efforts on debt with the highest interest rate sounds like a no-brainer, especially if that rate is in the 20% range. However, if this portion of your debt also has the largest balance, you may get discouraged by not seeing quick results.
Paying off debt with smaller balances really gives you two benefits. First, you have the satisfaction that comes with a goal being accomplished. This usually keeps the momentum going towards the next balance being tackled. Secondly, the money you were using to pay on the now paid off debt can go towards the next goal balance, decreasing the payoff time and interest.
The Debt That Bugs You The Most
We have all probably made a purchase we end up regretting later down the line. Some individuals make rather large ones, and place them on a credit card. So whether you are still paying for that new living room set you found on sale a month later, or the spring break vacation you shared with your now ex-girlfriend, if that’s the debt that bugs you the most, pay it off first. Get that monkey off your back, and start with a clean slate when working towards your next goal.
Of course, the first step in any successful plan is creating a budget. It’s hard to know how much money to pay towards debt when, well, you don’t know how much money you have. Take the time to create a budget, even a simple one, to see where those dollars are ending up. You may be surprised at what you discover…
It’s also important to put a halt to any new debt accrual. You won’t get ahead by spending the same amount you are paying off. However, transferring a balance to a lower rate card is completely acceptable. Just make sure that is the only new expense that is being added, and not those new pair of shoes.
Want to see more ideas about saving money? Check out my other posts on Fix Our Budget, and follow me on Facebook.
Photo by Stuart Miles. Published on 17 September 2014
Stock photo - Image ID: 100288658