Debt – Settle It and Pay It Off!

Paying the minimum monthly balance billed to you by creditors usually do not work.  Instead, it puts you further behind financially, because what you are paying first really is the interest.  And that interest amount is usually very high.  Example is you have a $3000 debt and the minimum monthly payment required is $50.  Interest from such debt, depending on the loan rate you get can vary between $1000 to $1500.  It will take 60 months alone just to pay the principal.  And so, if you tacked in the interest, it could take another 15 months!  That is seven and a half years!

And so, if you are in debt, here is a proven technique that I learned from a friend. 

How it works is actually very simple.  Here’s how:

The first thing to do is to make a list of what you owe. Do not include the usual expenses such as groceries or monthly bills like electricity or water.

Second step is to sort your debts from the smallest amount to the highest amount.  Typically, an average person or family has credit card debts, student loan, car loan and the usual top debt is the mortgage.

Next is to make a budget and a decision as to how much you would like to pay the smallest debt first.  Say, you have a $300 balance on a credit card and you want to pay $100 each month.  In 3 months, you got that credit paid.  And therefore have a $100 free money.  What do you do with this extra $100?  Do you spend it? 

The answer is NO!

Instead, use that extra $100 to pay the next debt on the list.  For example, you have a $500 loan and decided to pay $100 each month.  Now, that you have that extra $100, you can pay $125 each month and be done paying in four months instead of five.  After that debt is settled, you now have $225 extra.  Again, the key is not to spend it but to use that $225 extra to pay the next credit on the list.

Keep doing this until you get your debts paid off.  Patience, Discipline and Hardwork are also key ingredients in attacking your debts. 

The last advice is do not incur any more debts!  Also, do not borrow from “cash advance centers”, they usually have very high interest rates!

This holiday season, the temptation to spend is too much, from newspaper ads to TV jingles, its everywhere!  My personal advice is to be firm in your stand – only spend what you have.  If you don’t have the money, do not go overboard and incur additional debts.