Paying Down Your Debts
If you have enough income to start paying down your debts, the key is to
attack one debt at a time. You should make the minimum monthly payment on
all of your debts and then pay as much extra as you can on one debt every
month until that one is paid off.
It’s rarely wise to pay off long-term secured debts, like an auto loan
or a home mortgage, before you pay off unsecured debt, like credit card accounts
and medical bills. Focus first on unsecured debt.
To identify where you stand and which unsecured debts to pay off in which
order, grab your bills again and make another list. You’ll want to write
down:
- the type of debt (e.g., Providian Visa card or orthodontist’s bills);
- the total amount you owe;
- the minimum monthly payment; and
- the interest rate.
There are a couple ways to go when choosing which account to pay off first.
Some experts recommend paying off the debt with the highest interest first,
and that makes good financial sense. But, if that account has a high balance
and you have another account with a much smaller balance, it can be good for
your morale to pay off the smaller debt first.
Regardless of which account you choose to pay off first, stick with it.
Plan to pay the same amount each month on that debt until it’s paid
off. For instance, if the minimum monthly payment is $256 and you can make
a payment of $300 each month, do that until the outstanding balance is zero.
Then, take that $300 you were paying each month and add it to the minimum
monthly payment on the next debt you’re going to pay off. So if the
minimum monthly payment on the next account is $175, you’ll now pay
$475 each month.
If you pay off one account at a time, and continue making the same payment—in
total—every month, you’ll get rid of all of your debt. Assuming
you aren’t making new charges at the same time. So, put away the credit
cards while you’re repaying.
Next: Contact Your
Creditors |
