Everyone wants to be debt-free. While some debt is unavoidable, there are many habits that might cause people to end up with more debt than they can handle.
The problem with debt elimination is figuring out where to start. Here are three tips to help you get out of debt faster.
Create a debt payoff ladder
The most important step is understanding cash flow. Being able to identify what is coming in and what needs to go out can help create a debt repayment plan that gets you out of debt quicker.
The first step is to make a list of all of debts, putting them in order according to the balances due. List the smallest balances first.
Next, decide how much you can realistically afford to pay on all debt each month. Pay the minimums on all cards except for the first one on the list. That first debt will include that extra amount that you have determined you can afford to pay.
Pay these bills using these payment amounts each month until that first debt is paid off. When the first debt is paid off, the money is then reallocated to the next debt on the list. This strategy continues until all of the debts are paid first off. The amount that is paid each month should not change.
Minimum payments don’t work
Making only the minimum payments on credit cards will result in it taking more than 30 years to pay them off. This happens because the minimum payment is reduced every month to correspond to the updated remaining balance. As the payment goes down, the majority of the monthly payment is going toward interest, and very little of the principal is being paid.
It takes more than 30 years without adding any more debt to the card. So, if you continue to use the card, it would take even longer to pay the card off.
Some people may recommend paying off debts with the highest interest rates first. That may save a little more money in the long run, but paying the smallest debt off first is more motivating. By getting a small debt paid off, that is one less bill to worry about. As the number of outstanding bills is reduced, you are able to see progress and may be more willing to continue.
The biggest step is determination
The biggest step after creating this plan is making that determination to stick with it. If you are truly committed, and if you are willing to do what it takes to get out of debt, you can make it through. Often times, you already have what you need to get out of debt, and you just may not be aware.
Look at what you have available and how you are using it to see what you might be able to use to get out of debt. Reevaluate your spending habits to identify unnecessary spending. The extra money can be added to the debt payoff plan.
No plan will work without a commitment. Once you put your plan into action, it will become a habit, and you will be well on your way to becoming debt-free.