How to Pay Off a Debt
After spending too much during the holidays, you find yourself in a deep hole called credit card debt. Instead of crying, do something now. Here’s how to pay it off.
1. Decide which debt to pay off first. If you racked up more than one credit card, or you took out a personal loan from the bank or the local 5/6 money lender, list them all down – source, balance, interest rate, due date, and minimum payment required. Arrange them with the highest rate first. For loans with the same rate, prioritize the one with the smaller balance.
2. Stop borrowing. For crying out loud, you shouldn’t add to your burden. It’s belt-tightening time, man! It’s tipid mode. And use cash for all expenses.
3. Pay the minimum payment. Obviously you can’t pay all your debt in full. But make sure you pay the minimum and pay them before the due date to avoid paying penalties. You’ll still be paying interest on the unpaid balance, but hey, what can you do?
4. Allocate all you can afford to the highest-rate loan. While paying the required minimum for your other loans, pay as much as you can for the first item on your list until it gets paid off. When that’s done, apply the same amount you’ve been paying on the first and add to the minimum you’ve been paying for the second item on the list, until you pay it off. And so on.
5. Borrow at a lower rate. Didn’t we just say “stop borrowing?” Well, if it looks like it will take you a pretty long time to pay off your entire debt, consider borrowing from other sources that charge lower and use the proceeds to pay your high-cost loans. You can transfer balances to a credit card that offers 0% for the transferred balance for 12 months. You can borrow from relatives at a nominal rate. If really necessary, you may consider taking out a home equity loan.
If you like this, you might also like:
Category : Blog
