It is easy to run up a significant amount of debt if you have easy access to credit. You may get loans and credit cards without realizing just how much you owe until you start to have problems making your minimum payments. That is a danger sign telling you it’s time to start paying down your debts. You can remove those debts as fast as possible with a repayment plan that uses your money efficiently.
Create a list of all your debts and their current interest rates. Sort them in descending order, with the highest-interest credit accounts at the top of the list. These are the debts that cost the most, especially if you are only making the minimum payment due each month, because so much money is going towards the interest rather than the actual amount due.
Determine the maximum amount of money you can channel into paying off your credit-related debts each month. This may mean temporarily cutting back on items that are not necessary, like restaurant meals, premium cable television channels, the latest fashions or fancy vacations. A bare-bones budget will help you remove your debt more rapidly.
Make the minimum payment each month on the low-interest credit accounts and put all the rest of the money towards the high-interest debts. This will allow you to remove your debts as fast as possible because you are paying down the most costly accounts first.
Rechannel the extra money to the debt with the next-highest interest rate once you have paid an account in full. Keep doing this until all of your debts are completely paid.
Tips and Warnings
- The Motley Fool financial advice website states that you might be able to remove your debt faster if you negotiate with your creditors. Some may be willing to lower the interest rate on your high-rate accounts. You may also be able to transfer those balances to lower-interest credit cards.
Some financial advisers recommend paying off smaller debts first, regardless of interest rate, so you are inspired by the small but fast success to continue with your debt management program. While this works well for people who need to see quick results, MSN Money explains that you will save more money by focusing on high interest debts.
- Choose a card with which to do a balance transfer carefully. Some impose high transaction fees that will offset your interest savings, creditcards.com warns.