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Plan Well, Retire Well

Saving and investing your money
Debt-to-Income-Ratio

Paying Down that Dastardly Debt


Recently, I have been receiving requests from many of my friends about what they can do to work on paying down their dastardly debt. Whether it is student loans, that amazing vacation you splurged on or that new 70 inch TV complete with Blu-ray and surround sound you financed via credit card, most of us have some sort of debt we would like to take out of the picture. The problem many face is that they don't know what they need to do to begin their journey of effective repayment. Below are some tips and tools that I use to help me pay down my own Dastardly Debt:

  1. 1. Make a List

When you're faced with the damage created by digging yourself into a credit hole, the best way to tackle it is head-on. List of all of the debt you have, including the minimum payment, annual percentage rate (APR), current balance and credit limit. Make sure that you include all of your creditors like credit cards, student loans as well as car loans. This list will help you organize and prioritize the debt you want to focus on paying down first. It might look something like this:

Creditor

(Credit card, student loan)

Current Balance

Minimum Monthly Payment

Annual Percentage Rate (APR)

Credit Limit

Once you have had a good look at your dastardly debt you might want to find out your debt to income ratio. The number will give you a percent of debt you have compared to your overall income. This can be helpful for you to know in the event you are looking at purchasing a large expense such as a house or car because most lenders will look at this number too.

  1. 2. Make a Plan

Now that you have looked at your dastardly debt head on and checked out the ratio, it is time to make a plan on how you want to attack it. PowerPay is a free website that will show you how long it will take to pay off each creditor by snowballing it. When you snowball debt you add more money to the minimum payment to make it larger and pay off more principal on the debt, thereby reducing the interested owed on each subsequent payment. Once you pay off the principal and no longer carry a balance on one creditor, you add that dollar amount to the next creditor.

When using PowerPay, first it will show you how long it will take to pay off your debt with only the minimum payment. Seeing that it could take over 5 years to pay all of your debt off can be a huge motivator! After you input your information in, you'll want to go to the payment calculator and pick another repayment method such as lowest balance first. Whatever you decide – make it work for you. One other thing to pay attention to is the card's interest rate. Often times when making a repayment plan you want to focus on paying off the card that charges the most interest.

  1. 3. Stick to your Plan

This can be the hardest part about paying off that dastardly debt. An emergency or unexpected expense can quite easily pull you into using your credit card and delay the predicament a little while longer. That's why it's so important to have an emergency fund. Cutting ties with your credit card can be difficult especially when it may have been a lifeline for so long. Another way to remove the temptation to use your card is to take the credit card from your wallet. If the temptation is more serious than that, put your credit on ice, literally. Put your credit card in a plastic bag filled with water then place it in the freezer. As a last resort, you could always cut your cards in half – just make sure you put them through a shredder so no one else is able to get your information.

While attacking dastardly debt remember that you need to face how much debt you really have, make a plan on how to pay it off, and stick to your plan to become debt free. According to America Saves, 76 percent of Americans are working on reducing their consumer debt, or are consumer debt free. Regardless of the strategy you choose, remember paying off your debt is a journey that is not likely to go smoothly. Life is unpredictable, and having established plan will give you the structure you need to slash your dastardly debt.



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