5 simple steps to pay off your debts is merely the starting point. The actual, real-life ending point is step 6. Don’t repeat what put you in debt in the first place.
We all realize debt is always there. We can live in a cave and by golly we will buy something on credit and be in debt. Darn it, right?
In fact, I once said credit is merely debt spelled a different way. Think about it. The minute you swipe your credit card you have entered into the nether world called debt. And you stay there until the amount charged is paid in full.
Pay attention to the last part of the previous sentence. Your debts have to be paid in full or you will wreck your credit. And that’s a whole different world of hurt.
So, let’s start getting into Pay Off Your Debts in 5 Simple Steps. And the first step in the 5 simple steps is actually a pretty easy one. In fact, you can do it several different ways.
Pay Off Your Debts STEP 1 – Stop Adding to Your Current Debt
For starter’s, when you receive your credit card bill, you pay the balance owed. This way you avoid interest charges, service fees and any other fees credit card companies charge. This is one important way you won’t be adding to your debt. Interest is bad enough, but fees can kill you.
Have the discipline to not add to your existing debt by buying more stuff. Especially since chances are most of, or at least a good chunk of, your debt is for stuff you can live without.
Pay Off Your Debts STEP 2 – Review All The Statements From Your Debts
Make sure you review your loan and credit card statements. And any other statements you receive in regard to one of your debts. You want to know your balances, interest rates and payments. These items tell you how much you owe.
It’s very important information to know if you are serious about paying off your debt. You’ll be able to figure out which ones need immediate attention and which ones can get smaller payments.
Pay Off Your Debts STEP 3 – Reduce and Eliminate Expenses
Start looking for ways you can reduce or eliminate expenses. Most of us find extra money via birthdays, holidays, part time jobs, etc. If you are one of
those money finders, use those dollars to help pay off debt faster.
You’ll be ahead an exponential dollar amount if you do.
Pay Off Your Debts STEP 4 – Pay Off the Highest Interest Rates First
This one should be obvious but sometimes people simply don’t think in the obvious. Pay off debts with the highest interest rates first.
Do the math and you’ll discover that a high interest rate equals more dollars out of your bank account.
You’ll save money by getting rid of the interest rates that are sucking your money up. Debts with lower interest rates can receive smaller payments while you get the larger interest rates paid off. Simply put, the smaller interest rates aren’t costing you as much. Yet.
Pay Off Your Debts STEP 5 – Discover Ways to Save
This is the simplest step to pay off your debts. You want to discover ways to save money. Many have used the debt consolidation principle. They start by using the tip in step 2.
They determine how much they owe and then get a loan through their bank or credit union for the full amount. Then they pay all their outstanding
bills and don’t incur those charges again.
Now You Have a Different Problem
Now you have a different dilemma. What do you do with the excess money from the consolidation loan? Well most people put it away in savings.
Here’s the math: let’s say the loan you took out to consolidate your debt was $7,500. Now instead of a $1,000 a month going out to all the different debts you only $500 to the single loan. That means you would have an extra $500.
DO NOT spend the newly freed up $500. Put it away in a savings account. Or an investment vehicle that bears interest like an annuity. Now that money can start working for you instead of against you.
Some people have an emergency fund they keep hidden. Start putting the extra money in there every month. The important part is just DON’T TOUCH IT!! Your not touching it will be what makes the difference. Using our example, after a year, you’d have $6,000 saved. After 5 years you’d have $30,000. Not too shabby, ey?
An Important Note:
If you have built an emergency fund, never, ever, spend these dollars to pay your debt. It is an emergency fund for a reason. You never know when
the car will need new brakes or some other unexpected surprise will visit you. Save those dollars so you won’t be forced to add to your debt.
These 5 simple steps will pay off your debts. They can all be fleshed out into better detail. You know you’re situation better than I do. There are other ways to improve your savings or where you can find money.
However, I believe you get the idea. Know what you owe, don’t add to it and pay it off. These simple concepts are really what paying off your debt boils down to.
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