Money Management To Pay Down Debt
by Ricardo H Geltt on 2007-09-22
Offloading debts is a crucial part of managing your money. Freeing yourself from debt means more availability of funds for extra expenses and savings, which translates into more money in your bank. But the problem is that this seems pretty unmanageable especially when you are trying to work your way out of a number of loans at the same time. In this kind of a situation, the best way out is to be enterprising and pay off the debt by using an extra payment from one of your loans every month and work them off one by one. Though it seems difficult and requires planning, it is the quickest way to get out of a loan trap.
There are two things to remember while you practice this money management technique: pay all of your minimum balances and stop spending more than is necessary (especially on credit cards). These are the two tips that will help keep everything else in order as you work to eliminate your debt.
The first thing to do is put all of your loans in an order. You will pay them off in the order that they appear on your list. There are two types of lists, but you must pick the type that best fits you. Only choose one way. The first way is to order them from lowest balance to highest balance. The loan with the lowest money balance is placed first on this list (and hence the first loan you will pay off). On the second list, you list the debt in order of highest interest rate to lowest interest rate. The balance is not taken into consideration for this list; just the interest rate.
After you have the list, determine how much extra money you can devote to loan payments each month. This extra is on top of all of your minimum balances. You take this extra amount of money and put it toward the first loan on your list. This means that if your minimum on that loan is $15, and you have determined that you can pay an extra $20 each month, you will pay a total of $35 toward the first loan on your list. Keep paying the minimum balance on all of your other loans.
When you pay off the first loan, move on to the second loan on the list. But this time put all of the money you put toward the paid off loan toward the second loan. So if you have a $10 minimum on the second, you add the whole $35 from the first loan for $45. You can see how as you pay off loans it goes faster and faster. But you never increase the amount of money you pay each month. Unless, of course, you can afford to up the extra amount you pay.
There are two things to remember while you practice this money management technique: pay all of your minimum balances and stop spending more than is necessary (especially on credit cards). These are the two tips that will help keep everything else in order as you work to eliminate your debt.
The first thing to do is put all of your loans in an order. You will pay them off in the order that they appear on your list. There are two types of lists, but you must pick the type that best fits you. Only choose one way. The first way is to order them from lowest balance to highest balance. The loan with the lowest money balance is placed first on this list (and hence the first loan you will pay off). On the second list, you list the debt in order of highest interest rate to lowest interest rate. The balance is not taken into consideration for this list; just the interest rate.
After you have the list, determine how much extra money you can devote to loan payments each month. This extra is on top of all of your minimum balances. You take this extra amount of money and put it toward the first loan on your list. This means that if your minimum on that loan is $15, and you have determined that you can pay an extra $20 each month, you will pay a total of $35 toward the first loan on your list. Keep paying the minimum balance on all of your other loans.
When you pay off the first loan, move on to the second loan on the list. But this time put all of the money you put toward the paid off loan toward the second loan. So if you have a $10 minimum on the second, you add the whole $35 from the first loan for $45. You can see how as you pay off loans it goes faster and faster. But you never increase the amount of money you pay each month. Unless, of course, you can afford to up the extra amount you pay.
About The Author: Ricardo H Geltt is the owner of Few Money, a premier web source for information about money. For comments and more information visit: www.fewmoney.com This and other unique money articles are availble from The Uber Article Directory - more than just a mere article repository.