By Ryan Levin on October 28, 2011
.jpg.aspx) Getting out of debt is never fun and it’s almost always difficult. Especially when debt is deep, paying it off can seem like an impossible task. Here are some tips on ways to get out of debt to help soften the blow and get you started down the path toward freedom from debt.
1. This might seem like a no-brainer, but the most important thing to do when trying to get out of debt is not to increase your debt. If you’re working on paying off an enormous credit card balance, don’t use your credit card! This bears mentioning because if you’re in over your head, chances are it’s become a habit to buy first and think later. Break it. Only make purchases you can afford, or your efforts to remove yourself from debt will all be countered.
2. The next important step to getting out of debt quickly is to make sure you are paying more than the minimum monthly payment, especially on credit card accounts. Lenders want you to pay the lowest monthly amount possible, so your outstanding balance grows more each month, lasts longer, and collects more interest. The more you can pay every month, the quicker your debt will start going down, and the less you’ll have to pay in the long run.
3. If you want to get rid of your debt as fast as possible, the “avalanche method” is the way to go. Here’s how it works: make the minimum monthly payment on all your accounts, then funnel all your remaining assets into the debt with the highest interest rate. If you can transfer funds from higher-APR accounts to lower ones, do it. Once you empty the account with the highest rate, move on to the next highest. The trick is that as the debt starts to go down, the amount of money you have to fight it goes up.
4. When I say use all your assets, I mean all of them—empty that savings account too (excluding your IRA). It might be collecting 2 or 3% interest in the bank, but it can save you from paying 20% or more if it’s used to pay off debt. On a balance sheet, eliminating expenditures is essentially the same as increasing income, so this will save you money in the end.
5. Making higher payments every month will reduce your debt faster, but that money has to come from somewhere. Belt-tightening isn’t fun for anyone, but the more you can reduce expenses, the more resources you’ll have for fighting debt, and the sooner you can declare yourself debt-free. For some good ideas on how to cut spending on a day-to-day basis, check out these household tips, do your own internet search, ask your friends, or get creative and come up with your own ways to spend less.
Hopefully, you can use this information to win the fight against personal debt and start on the path towards financial freedom. Take a look at the references for more information on ways to pay off debt.
References:
http://www.fool.com/personal-finance/credit/9-ways-to-pay-off-debt.aspx
http://www.consumerismcommentary.com/the-correct-way-to-pay-off-personal-debt-the-debt-avalanche/
http://www.womensfinance.com/wf/manage_debt/
http://financialplan.about.com/od/creditdebtmanagement/a/How-Not-to-Pay-Off-Debt.htm
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