Rambling News: Insights/Opinions/Tips/Tricks in Today's World

Wednesday, November 22, 2006

How To (Money): Reduce Debt/Loans Slowly But Surely

Debt and loans plagues just about everyone these days. Whether they are credit card payments, school loans, or that new condo you just purchased...somehow, someway, there is a payment that must be made. Here are some simple ways to reduce your debt, and begin to pay off everything sooner and more efficiently.

1. Organize your payments. Pull up an Excel sheet and list your payments in its entirety from the smallest to the largest amounts that you owe. This is so you can visually see what you have to owe and how much. Next to the column of loans, list the minimum payment next to each payment.

2. Calculate how much money you have after you pay the minimum for each payment. Then, using that amount, decide how much money you have left after paying your regular bills, rent, food, etc. Lastly, from the last amount, subtract the amount you put away into your savings, 401k or similar retirement fund, IRA, etc. Record this final amount and move on to step 3.

3. Take the amount you have left from step 2 and use all of it to pay the smallest payment you owe (listed at the top of your organized Excel sheet from step 1). If the minimum payment is $20/month and you can afford $100, pay $100 per month for that payment. For the rest of the payments, pay the minimum amount. This way, you'll be able to get rid of the smallest payment as quickly as possible and continue to work on the other payments.

4. Work your way down the list and repeat steps 2 and 3 after each payment is completely paid off or if you get extra money from gifts, raises, bonuses, etc.

If you pay the minimum for every payment, you are paying all that extra interest for each payment, which is how they earn their money and where you waste more money...this is the sole reason why your debts and loans never seem to end!!! The faster you get rid of one ENTIRE payment, you don't have to owe interest on that payment anymore, which in turn saves you more money. The reason for getting rid of the smallest payment first is because the sooner you get rid of one payment, you don't have to owe interest anymore to that payment. Since the smallest payment will get paid off sooner (provided you pay more than minimum), you are shortening your interest costs to the other payments because you'll be able to attack the next payment after the smallest payment is paid off. If you try to pay off the largest payment first, it will take you a longer time, and in the mean time you are extending your interest costs to the other payments.

Try this out, and soon you'll be watching your debts and loans vanishing before your eyes.

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1 Comments:

  • This is pretty much how I do my budgeting. This really works. Being organized goes a long way...

    By Anonymous Anonymous, At December 06, 2006 9:41 AM  

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