Guidelines for Paying Off Debts

Debt Management. You Can Be Free From Debts.

Debt Relief!

Doesn’t that sound great! Okay, so it won’t happen overnight, but it will happen. You can’t erase the past, but you can take the right steps now and soon you will be on your way to a much better financial outlook. But remember, you've got to stick to your budget and not overspend.

One Strategy - Pay the Highest Interest Debt First

Make a list of all your debt obligations and the percentage of interest you're charged for each. Start by tackling the debt with the highest interest rate. Most likely that will be your credit card balance. Use all extra cash to pay down the debt with the highest interest rate, first. Pay as much as you can over the minimum due. If you get a raise or bonus or a second job, use this money to further reduce the top debt. While you are working on your highest priority debt, for all other revolving bills, pay at least the minimum monthly amount due.

This strategy will save you the most money in the long run. After you’ve wiped out the debt with the highest interest rate, tackle the debt with the next highest rate and so on.

Another Strategy - Pay off Debts with the Smallest Balances First

This is another strategy you can use that will give you extra money to pay on the bigger balances. The advantage of this one is psychological. It will, of course, be easier to eliminate your smaller debts. Seeing some debts completely disappear, relatively quickly, is rewarding and feels really good. You see results and that gives you incentive to continue with your plan.

The only exception to this strategy would be if you have a credit card with a low teaser interest rate. Skip this one until after the rate is targeted to rise, but in the meantime, strive to eliminate that balance before the low rate expires.

Build on Your Payments

After you pay off one of your debts, add that payment to another debt. For example, if you paid $40.00 a month toward a department store credit card and now that is paid off, add that $40.00 a month toward another account. Keep this up until all accounts are paid in full.

Get in Touch with Your Creditors

Don't ignore your problem and stick your head in the ground if you fall behind on payments. That won’t solve anything. It is far better to take action by calling your lenders to explain your situation before they call a collection agency. Most lenders will appreciate your taking responsibility for your situation and will work with you to set up a revised payment plan that you can handle.

Ask your creditors how much payment they need before they are able to send a favorable report to the credit reporting agencies. Sometimes they will agree to a lesser amount than your total debt. Paying back a little is better than doing nothing or just worrying about the problem.