Tuesday, November 5, 2024

How to Pay Off Debt

Date:

Related stories

Silicon Valley Stunned by the Fulminant Slashed Investments

I actually first read this as alkalizing meaning effecting...

The Next Wave of Superheroes Has Arrived with Astonishing Speed

I actually first read this as alkalizing meaning effecting...

Watch Awesome Kate Halle Go Full Wiming Pro in the Bahamas

I actually first read this as alkalizing meaning effecting...

The Weirdest Places Ashes Have Been Scattered in New Zeeland

I actually first read this as alkalizing meaning effecting...

The Car Insurance Catch that can Double Your Cover in Two Months

I actually first read this as alkalizing meaning effecting...

Being in debt can be very overwhelming. Managing your money is important in order to make your monthly payments on time. Prioritize your debts by importance. You also need to keep track of any interest charge on each of your debts since part of the money you give towards your debts will go towards the interest.

Understanding your situation and how to get out of it will require you to learn some strategies to help you with your debts. We will help you find the right tools for you to achieve a debt free life.

Do I Have Debt?

Debt is when you owe money for services given or goods purchased. Usually monthly payments are scheduled, in order to pay off the debt, with a payoff timeline.

There are different kinds of debts for example: mortgage debt, college debts, credit card debt, or child support debt.

How much debt do you have?

The first step to paying off your debt is finding out the total amount of your debt is gathering the following information:

  • What type of debt
  • Total owed
  • What is the interest rate on each
  • What is the minimum payment amount on each

Once that is figured out, then you will go to the next step which is calculating your disposable income meaning the money left over monthly after paying your monthly expenses. Remember to include minimum monthly payments in your expense list. That money that is left over will be used to start paying off your debts.

Debt determines your credit utilization ratio or percentage of the available credit that you are using. In other words, you are given a certain amount of credit. The credit that you use from that will determine your credit utilization. For example, if you have a credit line of 50,000 and you have used 15,000 of it then your credit utilization would be 80%. A high credit utilization gives your credit score a negative impact.

30% of your credit score using Fico, most commonly used, is based on credit utilization.

Do not use more than 20% to 30% of your available credit. Just to stay on the safe side, since there are no written guidelines as to what is the ‘safe zone.’

Solutions to debt

Some great ways to get rid of debts are: pay more than the minimum payment, pay off your most expensive debts first, get a second job, get a consolidation loan. Take the time to research how these strategies work. The internet is a great resource to finding out the best ways to get out of debt and even some to apps that will organize your debts and start paying them off for you! Then pick the one that best fits your situation. Before you know, you will be debt free! I have detailed a few plans for you and hope one will work for you.

1. Pay more than the minimum payment

Every month pay a little more than the minimum payment required. When you only make a minimum payment you are only paying the interest for the month and not reducing the principal amount. By paying a little extra you are taking a chunk off your principal balance and reducing your interest as well. Your debt will be paid off sooner.

2. Pay off your most expensive debt first

Make a minimizing payment on all your balances each and every month. Take the debt with the highest interest and highest balance and make and extra payment monthly on this one until it is paid off. Then you would go to the next debt and so on until they are all paid off,

3. Get a second job

With an extra job comes extra money! Use the money from your second job strictly to pay off your debts. This is one of the most effective and quickest ways to pay off your debt. Once you are back on track and debt free you are able to leave your second job or keep it while you increase your savings account.

4. Get a consolidation loan

​​​​​​​Either your bank or another institution can help consolidate all your loans into one big loan. Often times they will talk with the debtors and reduce the interest charge on some of your debts. This may make it easier for you if you get overwhelmed by having several payments. They will also help you make a budget plan so that you don’t end up in debt in the future.

5. Start couponing

​​​​​​​Couponing is a good way to save money. It may be time consuming at first but it will most definitely pay off. There are great coupons online, in magazines, and newspapers. Some coupons may even be combined with another coupon!

6. Avoid expensive hobbies or memberships

​​​​​​​Cancel any memberships and stop any hobbies that require you to pay an entrance or requires frequent purchases. This is a great way to increase your disposable income. Most of the time you can continue doing the activities without a membership elsewhere and you can always find hobbies that do not require you to give any money.

7. Track your expenses

​​​​​​​Tracking your expenses is a fantastic way to see in clearly and in detail what you are spending your money on each month. You can decide what you can cut down on and what you can do without. Adding to your disposable income.

8. Debt avalanche strategy​​​​​​​

List your debts from highest interest to lowest interest. Make minimum payments to all debts. Then make an extra payment to the one with the highest interest charge until paid off. Once paid off you go to the next highest until that one is paid off and so on. Before you can even realize it, you will be debt free.

9. Tax Refund

​​​​​​​Use your tax refund to pay a good Chunck of your debt off. Even if you don’t pay any of them off, they will put a good dent in them.

Others ways you can increase your disposable income is to:

  • Carpool for work – this would cut your spending on gas
  • Shop with a grocery list – this keeps you on a shopping budget preventing you from over spending yet getting all the groceries you need
  • Cell phones – talk to your cell phone provider to see if you can change to a less expensive plan
  • Eating out – Minimize eating out, if possible do not eat out at all
  • Entertainment – stick with free entertainment, watch movies at home, go on hikes, bike riding, go to parks, etc. anything that does not require you to pay.

You can also pay off your debts by other methods if your credit is in good standing for example:

Balance transfer – is when you transfer the debt balance from one account to another. In order to combine your debts and make a single payment instead of several payments to different accounts.

Consumer loan – getting a loan to pay off your debt. This leaves you with just one outstanding debt.

The last option would be to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. When you file chapter 7 the courts discharge most of your debts. You will no longer be responsible to pay them. With chapter 13 a payment plan is written up for usually 3 to 5 years. The amount owed is usually negotiated to a lower amount as well as the interest charges. During that time you are to make monthly payments. Anything still owing after that timeframe is discharged. However, if you opt for either bankruptcy options it will have a negative impact on your credit score.

The Importance of Staying out of Debt

​​​​​​​It is extremely important to stay out of debt in order for you to live a happy stress free life. Debt can have a negative impact not only on your credit score but also on your health, and can be the cause of broken relationships. To have peace of mind you need not to have a past due notice hanging over your head. Being in debt can have you in a bad mood causing you problems with friends and family and sometimes even at work. You can think of rebuilding your credit once your debt free.

How to Rebuild your Credit

​​​​​​​In order to rebuild your credit you will need to make sure you know what your DTI is. Your DTI is Debt to Income ratio which compares how much you owe each month to how much you make each month. When applying for credit this will play a big role on deciding whether to give you credit or not. It gives the lenders an insight as to whether you are able to take on a new debt or not.

Staying out of Debt

1. Budgeting – Create a budget plan that you can follow. Write down where money is going each month. This is a great way to stay on top of things. Add to this a Goal, where you would like to be financially 2, 3, or 6 months down the road. It will keep you focused and aiming towards a target.

2. Savings Account – In your budget include how much money to set aside monthly to put into your savings account. A savings account can also serve as an emergency fund account. It’s having peace of mind that in the event your luck runs out, you have that extra money to fall back on.

3. New Debt – Be strategic about any new debt acquired. Think ahead of how your budget plan would look like if you acquired this new debt and be realistic about it. Try not to have more debts That you can handle at once.

Just remember there is help out there for you. Never feel like your out there alone dealing with Debt problems. Reach out. Regaining control of your finances is possible. You just have to adjust your lifestyle in order to manage your money better, be mindful of your spending habits, and always have goals to reach. Below are a few website where you can find most of the information we have discussed in this article.

www.Ramseysolutions.com

www.nomoredebt.org

Latest stories