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| Debt - Strategically Pay It Back |
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When paying back debt, a little strategy goes a long way. It can literally save
you hundreds, even thousands of dollars in interest charges. And the best part
is that the best, most effective strategy is so easy to follow.
List
Your Debt
Make a list of all your debt: The amount of each, the monthly
payment and the interest rate. You may have trouble finding this information,
but it's worth bringing it all together into one place and documenting it in a
format you can follow. You can't manage your debt strategically if you don't
even know the full extent of it, now can you?
Remember to include your
credit cards (be sure to include the different rates and balances for purchases
and cash advances) other cards, loans, mortgages, and even money you've borrowed
from friends or family. All debt counts when you're trying to pay it off
completely or to get it down to a manageable level.
Bad Debt and Good
Debt
Go through your debt and organize them into "good" and "bad" debt. This
may sound a bit odd, but all debt is not created equal - certain types of debt
are nowhere near as bad as other debt. A mortgage, for example, is an investment
in a house, paid over a fixed term - there's no real risk of paying a ridiculous
amount of interest or never getting it paid off. On the other hand, the interest
you're paying on a credit card isn't tax deductible and isn't associated with an
asset of value and so that debt is "bad" debt. Below are a few examples of both
types of debt:
Good Debt - Mortgage, Student Loan, Car Loan
Bad Debt
- Credit Cards, Store Cards
As a rule, good debt is for a fixed amount
of time and allows you to buy something of value that without the debt, you
couldn't otherwise afford. On the flip side, bad debt is "revolving" and is used
as a substitute for cash to purchase in many instances, non-essential products
and services.
Prioritize
For the time being, cross your good debt
off the list. You shouldn't consider paying your good debt off early until
you've paid all your bad debts off.
First, arrange your debts by
interest rate, with the highest interest rate at the top. Odds are that the debt
at the top will be a store card or credit card, which could have a very high
interest rate. Next, try to transfer as much money as you can from the
high-interest cards down the list to the lower-interest ones.
Once
you've done that, focus all your energy on repaying the debt with the highest
interest rate. Pay the minimum on everything else and throw as much money as you
can find at paying that debt off as quickly as possible.
A few ideas to
come up with some additional monthly income are: Cancel any non-essential
monthly commitments and put that money towards your payments. Until you pay off
your bad debt - stop saving. Keep track of where your money goes, for a month or
two. This will enable you to find areas where you're spending money frivolously
that you could be using to pay off your debt.
Do your best to give up
any expensive habits you might have. You'll be shocked at how fast your debts
can go down if you put the money you normally spend on smoking, drinking or
gambling towards them! I'm not trying to spoil your fun here. Simply make a few
small sacrifices for a while, and your life will be so much better in the long
run.
You have to be aggressive against your high interest carrying bad
debt and focus on eliminating at all costs. This is a war, be the aggressor, win
the monthly battles and before you know it you'll win your war against debt.
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