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Debt-Free Strategy:

Paying Down Your Debt

Part 1

Paying Down Your Debt

Whether this you just completed a balance transfer or this is your first step, there’s something to be said for doing things the old-fashioned way.  While there are several useful tricks for breaking free of debt, when it comes down to the nitty gritty everyone needs to know how to make effective, strategic payments.

 

If you haven’t already, you’ll need to catalog all of your existing debt balances along with the associated interest rates.  Once you have all of this information at hand, you can continue on to one of two strategies:

 

The Psychological

This is a rather famous strategy in the world of debt relief that relies on smaller rewards in order to keep our motivation up, but keep in mind that it will cost you more money in the end.  With this strategy, you’ll be starting with the smallest debt balance and working your way up – this allows you to eliminate the number of balances much faster than our other method.  You will still pay the minimum payments for your other accounts, but all excess funds will be directed to your smallest account balance.  Once this is paid off, you will move on to the next smallest, and so on.    

 

  1. Catalog your unsecured debt from smallest to largest amount.
  2. Beginning with the smallest, pay as much as possible toward this balance every month, while continuing to pay only the minimum for all other debt.
  3. After this has been paid off, repeat with the next smallest debt.
  4. Continue until all debt is paid.

 

The Mathematical

This strategy might not offer the same emotional rewards, but it will save you the most money and get you out of debt faster.  Using this strategy, you will be allocating all excess funds (aside from the minimum payments due on your other accounts) to the balance with the highest interest.  You will continue to work your way down as you pay each balance off, until you are ultimately debt free.  

 

  1. Catalog your unsecured debt from the highest APR to the lowest.
  2. Beginning with the highest, pay as much as possible toward this balance every month, while continuing to pay only the minimum for all other debt.
  3. After this has been paid off, repeat with the next highest APR.
  4. Continue until all debt is paid.
Purse

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