Categorized | Retirement, Saving Money

5 Easy Steps to Pay Down Debt

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Let’s face it, within the last year we all having been spending a little more. Government studies recently released have confirmed that most American’s have spent more in the last few months. Being the average American, we tend to be looking for ways to forget about the mounting economic issues by spending our money to reward our demanding work schedules. So if you find yourself in this category, continue reading to learn and implement these 5 easy steps to pay down debt.

Step One: Create a Strategy

Coming up with a battle plan on how you are going to pay off your debt is one of the best ways to attack your debt head on. Creating a strategy has a two-fold effect on your monthly and yearly finances. On one hand, it allows you to better gain a grip on your monthly and yearly spending while understand how to best allocate your funds into savings and paying down debt. On the other hand, you are less likely to accrue more debt or overextend your finances. Knowing how much debt you have entirely will help you gain a foothold in your financial goals and be able to make a more educated plan of attack.

Step Two: Pay Off and Lower Intereststeps to pay down debt 2

Interest rates are the source of evil when it comes to calculating your total debt. The Higher the interest rate the more you have to. So when looking at what debt you should focus on, it is generally accepted that those bills with the higher interest rates, should be the main focus. Minimum payments should be made on all your other debt, with extra cash put down every month on your high interest debt.

By paying off or paying down your high interest debt first, you will lower the interest stacked against you. This will raise your credit score! Your credit score is calculated by the amount of debt to the credit ratio available to you. So in application if you have $5,000 dollars worth of debt but have $20,000 dollars worth of credit available to you, you are likely to have a higher credit score (pending you aren’t perpetually late).

Step Three: Stop Adding New Debt

Paying down your debt has to be a serious task undertaken. Like the achievement on any goal, you will start to feel good watching your debt shrink over time. It is important to remember that while your debt may be shrinking, this is not the time to start spending again. Even if your credit cards offer you some pretty nice perks or rewards. I’ll be the first to admit how tempting it can be to use the credit cards to pay for dinner for myself and friends, but ignore the temptation. Your financial security is more important than an extravagant dinner or weekend. Of course, once you have your debt within your control, then whatever you like to do is perfectly fine. However it is important to understand that getting your finances in order should be first priority.

Step Four: Pay with Bonus Money

Depending on what you do for a living will really depend on if this step is applicable. But if you earned a holiday bonus or even a New Years Bonus, this can help alleviate your debt. Most us tend to use this extra padding of income to fund a vacation, long weekend trips, or even some more luxurious purchases. With tax season upon us, many of us are looking forward to some type of refund. This can also be linked in with bonus money that can be spent on shrinking your debt. It may be easier to rationalize taking a long weekend to treat yourself after working so hard to pay down debt, but your financial health is just as important as your physical or mental health.

Step Five: Paying More than the Minimum Paymentsteps to pay down debt 1

Paying more than the minimum payment is the fastest way to pay down your debt until that fateful day when you pay off your debt. Commitment is key, so do not limit yourself to paying extra solely every month. If you can put an additional $20 dollars per week into your debt, then every month you are eliminating $80 dollars extra a month. In some states, it is possible to pay an additional amount of money strictly against the principle after the minimum balance is met. Paying more than the minimum payment is easy and quite possibly the best way to pay down your debt.

Paying down your debt may not be easy by first application, but that doesn’t mean that paying down your debt is impossible either. These five steps should help you gain control over your debt, and help to secure your financial well being, both in the present and in the future towards your retirement goals.

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