SALARIES / MAY. 21, 2014
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How to Pay Off Your Debt

Unfortunately, ignoring your credit card statements and hiding from creditors isn't going to make your debt disappear. Getting rid of balances requires action on your part -- a realistic plan and determination. Many students and young job seekers get themselves in debt due to the struggling they are faced with when it comes to finding a job. With overdrafts to pay off, student debt to repay and the mounting pressure of moving out of their parent’s home, credit cards can become the ‘easy’ option.

It might be an uphill battle, however, there are effective ways to take control of your finances and put high balances behind you.

#1 Stop charging items to your credit cards

If you're serious about paying off credit card balances, stop charging items to your cards. The truth is, you can't pay off a credit card if you're constantly adding to your balance (unless you pay balances in full each month). This might be challenging, especially if you've developed a habit of using your credit cards for everyday purchases. But if you can adopt a "cash only" mentality, you'll stop adding to your balance, at which time it'll become easier to pay down what you owe. 

#2 Bi-weekly payments

Consider bi-weekly payments if you're trying to pay off an auto loan or a mortgage loan early. This approach involves paying one-half of your payments every other week. If you can stick with this method, you'll make the equivalent of 26 half payments a year, or 13 regular payments a year (one extra payment each year). A bi-weekly schedule may not seem to make a difference; however, sending a payment every two weeks significantly reduces your interest charges, helping pay off loans sooner. In fact, a bi-weekly payment schedule can reduce a 30-year mortgage by as much as seven or eight years. 

Speak with your lender beforehand. Unfortunately, some banks do not accept half payments. 

#3 Negotiate a lower interest rate

It's difficult to pay off credit cards when you're paying a high interest rate. If you have good credit and always pay your bills on time, contact your credit card company and negotiate a better interest rate. Ideally, you'll want an interest rate under 13% -- but any reduction is better than none. A lower rate reduces your interest charges, thus helping to lower your balances quicker. 

#4 Transfer your credit card balance

Sometimes, banks simply won't negotiate and lower your rate. Rather than accept a higher rate, start shopping around for a new credit card. Several banks offer balance transfer credit cards, which let you transfer high-rate credit card balances to a card with a lower rate. And in many instances, balance transfer cards feature a low 0% introductory rate. 

#5 Pay more than your minimum

Getting stuck in a minimum payment trap isn't going to eliminate your debt. Unfortunately, you'll need to drop a lump sum on your credit cards or loans to see a noticeable difference in your balance. For example, if you owe a credit card company $5,000, you can realistically pay off this card in about 25 months with $200 monthly payments on a consistent basis. But even if you can't drop a lump sum, consider doubling or tripling your minimum payments. 

#6 Sacrifice

Paying off debt isn't without its challenges. And if you don't have a lot of disposable income, you'll have to make a few sacrifices -- of your time, energy and possessions. Ask yourself, how badly do I want to pay off my debt?

Are you willing to work overtime or get a part-time job? This approach may zap your free time and energy, but it can provide the extra cash you need to start eating away at your balances. In addition, are you willing to give up or scale back on unnecessary spending, such as eating out, shopping and vacations? Depending on how much you owe, you might have to sell off personal belongings, perhaps an extra vehicle, electronics, jewelry, etc.

In your opinion, what are the best ways to pay off debt?

Image Credit: Flickr 

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