Financial Freedom Awaits

Debt is easy to get into. We all buy things on credit, take loans out to get instant money or pay for goods on credit cards. Credit can take minutes to build up, but years to pay off. When debt builds up we end up paying regular monthly payments that simply increase every time we get more credit.

The first thing we all have to do to clear debt is stop getting into any more debt. If you never took out another loan and cut up your credit cards then after a while you will pay off all your debt (provided you are making regular monthly payments).

However, there are lots of clever ways to pay off debt quicker and help you to become debt free. Simply make a list of all the debt you have. This is everything that you pay to a creditor and includes any loans, credit cards, financed items such as the finance on your car or furniture and also the big one, your mortgage.

You Should Know:

 

1. How much the debt is for or the total amount
2. How much is left to pay off the debt
3. What you pay every month
4. How many months you have left to pay
5. AND the interest rate you are being charged

If you add the amount of debt (number 2 above) you have left on each one of your debts then this is how much you owe to creditors. If you then add up all the monthly payments (number 4 above) then this is what you have to pay every month. Once you have worked this out then you are in a good position to start working out the fastest and cheapest way to clear this debt.

Paying Off The Debt As Quickly As Possible:

There are several ways you can pay off debt quickly. Some will be better than others and it also depends on the type of debt you have.

The Interest Pay Off – Targeting Number 5 On The List Above

If you have a credit card or mortgage then you are charged interest monthly on the amount of credit you have left to pay. If you take the credit card or loan that charges you the highest rate of interest, then paying this off earlier saves you the most amount of money in the long run. Once it is paid off, you move to the next creditor with the biggest interest rate. Because mortgages usually have the lowest interest rate out of all your loans or credit cards and is secured debt you should leave this until last on your list.

The Minimum Loan Pay Off – Targeting Number 2 On The List Above

If you take a look at all your loans and start paying extra on the smallest loan then this will be paid off the fastest. Once you pay this off, take the amount you were paying on that loan and use it towards paying off the next smallest loan.
Eventually you will again end up with only your mortgage left which – if you take all the money you were paying on your other loans and put it towards your mortgage you can pay it off a lot sooner.

The Biggest Payment Pay Off – Targeting Number 3 (Or 4) On The List Above

This works best for small loans with fixed payments or credit cards with low balances (like store credit cards). Because you want to reduce the amount of time and money you have to use to pay off the loan you simply target the largest payment you have to make every month and put as much extra towards it as you can, while paying the minimum on the other debts. You can also target the loan that has the least number of months left.

Clearing the loan that takes the highest payment every month has the biggest effect on your bank balance every month. Clearing the loan that has the least number of monthly payments left has the fastest effect on your monthly bank balance.

The clever part is to then use the money you save once you have paid off the loan to pay the other loans off faster and not to get comfortable with the debt you have left.

Of course, if you have too many credit cards and your budget is already stretched to the max every month you might want to seriously consider a credit counselor. For more information on credit counseling and to see if it might work for you go to our website http://www.10800BadCredit.com and check that out.