Debt has become a reality of life in America. The average adult has thousands of dollars of debt, even without a mortgage. Car leases and loans, rent to own furniture and electronics, “no interest for 90 days” payment plans… All of these things contribute to the ever-increasing debt load most people are burdened with.
The first thing you have to do to free yourself financially is to make the decision to get rid of all debt. Once you make the decision, you should further commit yourself by stating that you will get rid of debt, no matter what it takes. It is tough to pay down debt, but you can, if you attack debt with everything you’ve got.
Step One: Prioritize Your Debt
Most debts such as mortgages, car payments, and credit cards have minimum monthly payments that you must make. Of course, your first priority is to make all required payments on time.
After you do that, list your debts in order of interest rate amounts: highest rate first, down to the lowest rate. You should pay off the highest interest rate first – that will save you the most money.
Step Two: Prioritize Expenses
List everything that you spend money on during the month. Split your expenses into two categories: needs and wants. You need groceries; you do not need to go out for lunch three times a week. You need clothing; you do not need a name brand hot pink purse because it just looks SO CUTE with your new shoes.
After you bid goodbye to most wants that are extraneous expenses, then take a long look at your needs. In order to pay down debt, you must free up as much money as you can to put toward it. If your normal cup of coffee costs $4.00, try making it at home for 50 cents per cup.
Step Three: Pay Bills Often and With Every Extra Penny
Paying your half of your mortgage bill every two weeks rather than once a month can save you approximately $75,000 over the life of a 30-year loan. It will also reduce that 30-year wait to own your home to about 20 years. Paying your car purchase debt down every two weeks can save you over $10,000 in interest charges.
You can see by these examples that paying more frequently on your bills will reduce not only the total amount of your debt, but the time you will be under it.
Paying a debt every two week, the average frequency of getting a paycheck, is a simple method of reducing debt more quickly. Adding more money to each payment you make will reduce the debt even faster.
Remember when you prioritized your expenses? You saved that money on coffee for a reason. Not so you could buy another hot pink purse, but so you could put it toward your debt. Adding $30.00 to each payment you send out – the savings from just changing your coffee habit every two weeks – will pay off your debt years faster, and save you thousands of dollars.
Once you make the decision to pay down your debt, attack it with everything you’ve got. Paying more frequently, and including more in each payment will save you the most money possible. And you will be debt free much sooner.