Here’s another way to pay off all your debts, especially when you have high-interest credit cards to deal with:
First, list all your debts. If you haven’t done this before read the earlier blog post to show you how to locate every debt you owe.
Next, write down next to each debt the monthly payment, and also the interest rate for that debt. Use the current interest rate, from the latest statement. If you don’t know what it is or cannot find your statement, call the company and ask them what the interest rate is for that debt. THIS IS IMPORTANT so be sure to make note of each one.
Add up all your debts.
Add up all your monthly payments.
Now you should have a total amount you pay each month to all debts. Here is where you can start paying off your debts faster. This is how you do it:
Look at your budget. (If you don’t have a budget, see the blog entry about how to create a budget.)
Notice how much extra you have each month to spend to pay down your debts. If it’s not a lot of money, that’s all right, this will still work. If you can eliminate some optional expenses for a few months to work on this plan, do that and use the money for this right now.
Take the highest interest rate debt – let’s say it’s a credit card charging 24% interest. Pay the minimum payment PLUS the extra money you found in your budget this month, and make the payment on that debt.
For all the other debts, make the minimum payments this month.
Keep working on eliminating optional or unnecessary items in your budget, and take the extra money you’re saving and add it to the minimum payment on that highest interest rate debt next month.
Soon, that debt will be paid in full.
Now the REAL fun begins!
Find the next-highest interest rate debt. Let’s say it’s a 20% interest rate credit card.
For all your other debts except this one, make only the minimum payment. But for this highest interest rate debt, make the minimum payment PLUS the extra money you used to pay to that recently-paid-off debt, PLUS any extra money you found in your budget.
Continue paying extra on this debt each month until it’s paid off.
Now look at the debts, and choose the highest interest rate debt, and use this same method to pay it off faster. By now you’ll have what you used to pay toward two other debts, so this debt will go bye-bye a lot faster.
Use this method to eliminate all your debts faster and with less interest payments than other methods of payoff.
Hope this helps!