Want to pay off your debts? Lucky for you, this is the post to help you do just that.
Anything worth having in life takes hard work and dedication. There is an amazing sense of accomplishment and joy when you can tackle what seems to be the impossible. The same is with your debt. Paying it off is NOT easy. It is going to take a lot of time, but it is so well worth it!
Of course, before you can just jump in to start to pay off debts, you need to follow the right steps. It is imperative that you’ve already done the following before you actually start working on paying off those debts you have. These include:
If you’ve done all four steps then you are ready to move on to the fun part — actually paying down your debts!! If you haven’t, you will want to take the time to read each post and follow the steps. These are important as you can’t really get out of debt until all 4 are addressed.
HOW TO GET OUT OF DEBT
Watching your debts slowly disappear is so much fun, I’m not going to lie! However, it is important that you are ready for this step. As mentioned above, make sure you have completed your pay down form correctly.
This form should list all of the debts you owe, listed from the lowest balances to the highest, as well as your minimum monthly payment. You should also have your budget, handy too! Got that? Good!
You can use our free debt pay down form if you would like. To get yours, just fill out the form below and I’ll send you a link to get yours.
To begin, review your budget. Hopefully, you were able to find some “extra” money. By extra money, it means money you have left over after your needs are met. This is the income that is not applied to a specific category. Any amount you find will be applied to your debt.
For example, if you were able to lower your grocery bill from $800 to $650 a month, that means you now have $150 to apply to your debt. My husband and I did this and it made a difference. We did everything we could to reduce our grocery budget from using coupons to menu planning and even changing the foods we ate.
Because getting our debt paid off was so important, we eliminated dining out from our budget. For us, it was important to sacrifice in the short term to get ourselves out from underneath our debt.
When you find this extra money, you apply that to your debt. Start by paying any additional money towards the debt on which you owe the least. Here is an example:
Citibank – $500 owed — minimum payment $10
Visa – $875 owed — minimum payment $15
Ford — $10,475 owed — required monthly payment $375
If you find that you have $25 left over in your budget, apply that towards the lowest debt. Your form will look something like this now:
Citibank – $500 owed — minimum payment $10 monthly payment $35
Visa – $875 owed — minimum payment $15
Ford — $10,475 owed — required monthly payment $375
Continue to make the payments to these debts as listed. Then, when Citibank it paid off, you will roll the $35 payment into the Visa payment, like this:
Visa – $875 owed — minimum payment $15 monthly payment $50
Ford — $10,475 owed — required monthly payment $375
Continue this same process. And, as there is more money freed up in your budget, apply it towards this debt. Once you start seeing the balances decrease, you will be more motivated to cut your spending and slash your debt.
That is what happened to us. We were so excited to see those balances decrease that we kept finding more ways to not only reduce our monthly spending, but to find more money!
HOW TO PAY OFF YOUR DEBTS MORE QUICKLY
Of course, the first step to paying off debts is to find money in your budget to apply towards them. It can also be very helpful to apply larger amounts of cash towards your debts, or even find ways to free up even more money. Here are some things you might try:
- Sell items on Craiglist, Ebay or other methods. If you have extra things lying around the house, you may wish to sell them and raise some money and then turn around and make a nice big payment on that smallest debt.
- Get another job. If you can swing it, pick up a part time job and apply all of your earnings towards your debt.
- Reduce savings and pay down debts. If you happen to currently have MORE than $1,000 in the bank, but still have debts, you should really take any amounts above $1,000 and pay down your debts BEFORE you are saving. The reason is why are you saving money for yourself and paying more in interest to someone else than you are making yourself?
Get creative! There are many ways you can find extra money in your budget. One of these 50 ways to make money to pay off your debt might actually be the perfect solution for you!
HOW TO APPLY YOUR TAX REFUND
So, what about that nice big tax return that is might be coming your way? Experts say that you should use the rule of thirds:
1/3 towards the past — use to pay off debts
1/3 towards the present — have some fun
1/3 towards the future — savings
If you truly want to get out of debt, I would recommend you do the following: Make sure that you have at least $1,000 in the bank so your Emergency Fund is completely funded. Then, apply any left over tax refund towards your debt.
We would all love to just go spend a large sum of money on a new television, clothes or a trip. However, you have to decide if you want that instant gratification (which may turn to guilt) or if you really want to get yourself out of debt. While I can only recommend that you work on debt first, this is a question only you can answer.
WHY NOT CONSIDER INTEREST RATES?
I hear this over and over again “You should really pay off the highest interest rate debt first!” I actually do not agree with this and the reason is this – behavior.
Most people need to see that they are reaching goals. We need to see that our hard working is actually working. By paying off the smallest balance first, it gives you a sense of accomplishment.
You see what you are doing is actually working and you keep working to pay down other debts. That gives motivation to keep on as you can see that you are really paying off debts and can do this! GO YOU!!!!
If you work on only the balance with the highest interest rate first, it may take longer to actually pay it down. If the rate is higher, the payments you apply may take longer to actually tackle the principle balance, as so much is being applied to the interest instead. This can actually result in more frustration and wanting to quit as you feel you are getting no where.
Look at it this way, if you were not trying to get out of debt, you would still increase debt due to interest rates, right? So, if you can do something that gets you on track to start to pay them down one at a time, you are already making a difference in how you look at your debts.
Of course, if you feel better about listing via interest rate, that is what you need to do. There is not a right or wrong way to pay off your debts. Just keep in mind that if you find yourself frustrated with progress, you might try to change it around and tackle that lowest balance first. It just might make the difference for you.
CLOSING THOUGHTS
Getting out of debt is not easy. I’ve been there and know how difficult and challenging it can be. However, having the tools you need in order to make it happen is key in your success. If you’ve reached your goals, please let us know! I love reading about others who’ve tackled the debt monster too and came out victorious!
Original article and pictures take www.pennypinchinmom.com site
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