There’s nothing that destroys finances quite like debt. In small payments, it seems inconsequential – But over the months, years and sometimes even decades, the debt adds up and you end up paying astronomical sums of interest for relatively small amounts of debt.
Not paying off your debt can really hurt your chances are financial security and a good retirement. Fortunately, with a good plan you can completely eliminate debt from your life once and for all. Here’s how.
==>Cut Your Credit Cards and Stop Acquiring New Debt
The very first step to eliminating debt is to stop acquiring any new debt. It seems simple, yet so many people talk about trying to eliminate debt while they still carry around credit cards in their wallets. Sooner or later, you’re going to use that card.
So start by cutting up your credit cards and weaning yourself off the habit of using money you don’t have yet. Get a debit card instead. Anytime you spend money, spend your own money, money that you’ve already earned.
If you can’t quite bring yourself to cut your cards just in case of future emergencies, then at least put them away in a place where you won’t see them. Do not leave them in you wallet.
==>Transfer As Much as Possible to Low-Interest cards
If you have a card at 15% and a card a 9%, try to transfer as much of your debt to the lower percentage card as soon as possible. Again, a few percentage points might not seem like much today, but the extra interest can very quickly add up.
Take advantage of introductory offers like “No interest for 6 months” or “Only 4.9% for 1 Year” offers. Make sure you read the fine print when you use these cards, as fees and restrictions can really get you if you’re not careful.
Finally, do know that this can damage your credit in the short run. Part of your FICO score is calculated by how much you’ve utilized your highest balance credit card. In other words, if you have a 5% card that’s 100% full, that’s worse from a FICO perspective than having 3 15% cards that are 30% full.
But the repercussions are short term; as the moment you transfer the debt out of the card or pay it off your score will go right back up.
==>Pay At Least Double the Minimum Balance
Banks want you to pay the minimum balance. They want you to take years and years and years to pay off your debt. The longer you take, the more money they make off of you.
On the other hand, if you want to save money, you should try to pay off the debt as quickly as you can. While it’s usually not feasible to just pay it all off at once, try to pay at least double the minimum amount.
This will dramatically increase the speed at which you’ll pay off your debt.
==>Check Over New Policies Carefully
In the recent recession, a lot of people have reported seeing their credit card rates skyrocket. Sometimes they didn’t even know their interest rates had gone up, because the notice was sent to them by the bank in a statement buried in other legal mumbo-jumbo.
But if you want to pay off your debt, it’s crucial that you stay on top of your interest rates. So make sure you open all mail from your bank and read it carefully for any policy changes.
Paying off your debt doesn’t have to be an impossibly arduous task. Set a goal for how much you want to pay, make sure it’s at least double the minimum, cut up your credit cards, transfer debt to low-interest accounts and carefully review any policy changes by your bank.