How to Pay Off Debt Most Efficiently
For most of us it starts in college. For some of us, it begins when we start our first major job and move into our first apartment. In other cases, the debt load starts to pile up when we forge out on our own and attempt to start a new business.
But no matter how you have managed to accumulate your debt, the only question that needs to be addressed at this point in time is “How do I get rid of it?” Now that you have come to the realization that something needs to be done about your debt situation, your next task is to put an effective debt reduction plan in place. This is step by step guide for how you can eliminate your debt most efficiently.
Step 1. Form a “ Pay Off Debt “ Chart
It is much easier to form a plan to eradicate debt when you have a visual representation of what you are up against for reference purposes. Create a debt chart or table that is formatted in a way that is easy for you to follow. At the top of the page write today’s date, and for each of your creditors list the following information:
- Creditor Name and Phone Number
- Account Number
- Current Balance
- Interest Rate/APR
- Minimum Payment
- Rank (leave blank for now)
Once you have all of this information written down in your “ pay off debt ” chart, take about 20 minutes to absorb the information. Total up all of the balances so that you can know how much total debt you currently hold, and then move onto the next step.
Step 2. Figure Out What Type of Debt Account You are Dealing With
Once you have all of your debt accounts listed, you then have to determine whether they are revolving accounts or installment accounts. Installment accounts are commonly tied to property, such as houses and cars. They have a set, fixed monthly payment that ends at some point in the future, such as a car loan that ends in 60 months. Revolving accounts, such as credit cards, are the tricky ones, because you can always add additional debt to them, and the payments can go on forever if you continue to use them. That is why it is important to pay off your revolving accounts first, then start working on installment accounts.
Step 3. Rank Your Debts in Order of Interest Rates
Remember that “rank” section that you were supposed to leave blank earlier? In this step you’re going to start filling that column in. First, you want to look at all of your revolving accounts since those are the priority. Rank them in order starting with the highest interest rate account at number “1.” Once you finish with your revolving debts, you can then continue the ranking process with your installment loans (highest interest rate accounts first). This rank is the order in which you will pay off your debts. Important note: if your installment loans have a prepayment penalty clause, you do not want to include them in this process.
Step 4. Dedicate all Extra Income to Paying Off Debt
Once you have your debts lined up and ranked, you are going to start dedicating every extra dime you have available on a monthly basis to paying off the debt, even if it’s just $100. Start with the account you ranked at #1. Pay the minimum amount due PLUS the extra $100 towards that debt each month until it is paid off, while continuing to pay the minimum on all of your other accounts. Once the balance on that first debt is “0” you can draw a big black line through it and start putting that extra $100 towards the next debt on your list. This process is called “snowballing.” You continue this process until all of your debts are at a zero balance. Clearly, the more extra cash you are able to dedicate to this process, the quicker you will be finished with your debt.
Step 5. Stop Using Revolving Accounts
This step is quite possibly the hardest feat to accomplish when attempting to pay off debt. You have to make a commitment that you will stop using those credit cards and other revolving accounts from this point forward. Let’s face it – when you use credit lines that cannot be paid off immediately within the same billing cycle, you are living outside of your means. That behavior pattern must be stopped if you are going to be serious about paying off debt. Most credit counselors agree that it is good for your credit score to keep some credit card accounts open after paying them off, but you simply cannot continue to use them. So slice up your credit cards and take on a “cash only” mentality. Adopt the following thought process when you are out shopping: if I don’t have the cash to pay for this, then I cannot afford it at this point in time.
If you do not feel that you are disciplined enough to implement this method of paying down your debt on your own, or are still somewhat confused by the process, debt settlement companies like NetDebt.com can not only help you pay off debt, but also slice your debt by up to 50% off the bat.
How, you may ask, is that possible? NetDebt.com has a team of qualified debt settlement attorneys on hand who will represent you in a debt negotiation with your creditors. These attorneys are very good at what they do; they understand how creditors operate. A creditor will always prefer to settle with a customer rather than risk netting $0 from a possible bankruptcy proceeding or chasing down a customer who simply decides to stop paying. The NetDebt attorney will then pay off credit card bills and other unsecured debts on your behalf from an online debt consolidation trust account established in your name. All that you are responsible for is paying the amount you would normally put towards your debt into the trust account on time every month.
No matter how you choose to pay off debt, it’s important that you remember that you are not alone in your efforts; millions of Americans are in the same boat. You are one of the intelligent few who have decided that it’s finally time to take back the reigns of your out of control debt situation.
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