How to Pay Off Debt.
Are you confused on how to pay off credit card debt? If you are finding it difficult to pay off debt, you are not alone. However, you don’t need to remain in debt perpetually. It is easier to accumulate debts. But when it comes to repayment, it is not always that easy as you may think. If you are debt free, I congratulate you. You may not actually know how important it is to be debt free. It is usually said that a cow does not know the value of its tail until it is cut off. Debt is not good. You cannot claim to have freedom if you are in debt. A borrower is a servant to the lender. So, if you are debt free, I will encourage you to do everything you can do to remain debt free. However, if you are already in debt, that is not the end of the road. The debt started one day. In the same way, you can have the assurance that it will come to an end one day. Nevertheless, this cannot be possible through mere wishful thinking. It takes determination to pay off debt. You may be wondering how you entered into debt in the first instance. Well, you should not allow that thought to bother or weigh you down. What is important now is how you can pay off the debt that you owe. You may not even know how to go about paying off the debt. Don’t worry! The fact that you are reading this article, I can see that you don’t want the debt to continue. You are actually taking a step in the right direction. One thing I want you to know is that, the best way to pay off debt is to take one step at a time. So, I want to congratulate you in advance because that debt will soon become the thing of the past. While can’t you just give yourself a smile first before you continue with this article. Why the smile when the debt is still there staring at your face? It is a sign of hope. Secondly, you can hardly achieve anything tangible when you are depressed. This may sound motivational. It is, of course! It is part of the strategies that can help you pay off debt even faster than you imagine. When you are happy, you become more creative. Don’t be surprised that you can even come up with better approach on your own on how you can pay off the debt.
Besides the motivational aspect as discussed above, you can actually pay off debt by taking the practical steps enumerated below:
Have determination to pay off the debt
What is the best way to pay off debt? This question is not uncommon. But if you ask different individuals who are good at debt counselling, they would probably give you different answers. I will say that the best way to pay off debt whether you want to pay off credit card debt or any other type of debt, is for you to have the determination. When there is a will, there will be a will. If you don’t have your personal determination in place, it does not matter any advice you are given, it may not work.
Establish the debt amount
Do you know the exact amount that you currently owe? The first step you need to take towards paying off your debt is to establish the total amount of the debt. If you don’t know the amount, contact your creditor(s) to confirm the amount to you. You may not rely on just the balance. It is better to have your statement sent to you. Your statement will show the details of your transactions. It is possible there are errors or omission in the statement. You should take time to reconcile your accounts with your creditors. After you have established the total debts, write the amount on a paper. It doesn’t matter how small or big the amount; you should not allow it to intimidate you. Have a positive attitude toward the repayment.
Analyse the Debts
Now that you can ascertain the total amount, you can take the next step on how to pay off debt by breaking the debts into categories. What are the types of debts that make up the total amount? You can break them down into credit card balances, personal loans and mortgage loans. This is just an example. Your own debts may not include all the debts mentioned here. Arrange them in the order of priority. For instance, if you are having credit card balances, it is better you rank it first while other types of debts can then follow. Furthermore, if you have more than one card balance, you should arrange the balances in the order of their interest rates. You should give a credit card balance with the highest interest rate a priority.
Renegotiate with your creditor
When a debt is becoming too big as a result of the interests that it has accumulated over time, it may be difficult to pay off the debt. If you could afford to pay the debts, it wouldn’t have remained unpaid to this point. One of the strategies one can employ to pay off debt is to plead with the creditors. Possibly, they can waive part of the interests. If that one does not work, you can negotiate for lower interest rates. In most cases, high interest rates contribute to the inability of some people to pay off their debts. If your creditors can see your determination towards paying off the debt, they may agree with you.
If you still have debts with high interest rates, you can consider the consolidation option by transferring the balances into one account with lower interest rate. Before you decide on balance transfer, you should be sure that you will be able to pay off the debt within the introductory interest rate. The APR of balance transfer cards is excessively high. Besides, don’t forget that you will need to pay transfer fee on the amount transferred. The average transfer fee is 3%. If you don’t do your homework properly, you may end up going deeper into debts. If you will like to consider balance transfer, it is better to shop for 0 apr balance transfer cards. With 0 apr balance transfer cards, you will not need to pay interest on the outstanding balance during the 0% introductory rate period. The length of the 0% introductory rate period should be a major factor to consider while search for balance transfer cards. It usually varies between six months and twelve months. The longer the period, the better.
Read Also: Is 0 apr credit cards right for you or not?
Create a Payment Plan
How do you plan to pay off the debt? Paying off debt requires that you determine the specific amount you want to be paying monthly. If you are serious about paying off the debt very soon, you may need to pay beyond the minimum payment, Minimum payment may not be enough to pay off the entire debt within the 0% introductory period. At the same time, you should set the amount you know you will be able pay promptly every month so that you will not fall victim of late or missed payments.
Draw up budget
This time around, you cannot afford to continue living without having a budget drawn up. Your budget should contain all your expected receipts and payments. Don’t forget to include your monthly debt repayment as part of your payments. It is always safer to underestimate income or receipts than to overstate them. Also, you will do well by ensuring you maintain a positive cash flow at the end of every month. This will serve as provision for emergency. I want you to see budget as a tool that can help you maintain good discipline when it comes to your spending habit. If you want to buy something and it seems that your budget cannot accommodate it, you should learn how to differ such expenses.
Learn from other people
If you are finding it difficult to draw up your budget or how to pay off debt still seems complicated for you, you can approach people who had been in your shoes before. Some people will be willing to share their experiences with you. Getting practical tips on how to pay off debt from people that had actually gone through the process will not only guide you, it will give you courage that you can pay off your debt too. If you go on internet, especially forum on personal finance, you will not only see interested threads that can educate you, you can ask questions that directly relate to your situation. Before you can post questions, you will need to register as a member. One thing I like about forums is that, you can post or answer questions anonymously. So, if you don’t want people to know you, you don’t need to disclose your identity. Some forums will not even allow you to disclose your identity on their boards. However, you may not be able to hold anybody responsible for any advice you follow. You will need to weigh all the pieces of advice you receive and choose the one that you think is most appropriate to your situation. The truth is that you are the only person that best understand your situation.
Change your spending habit
Don’t just change your spending habit; you may even need to cut down your expenses on the items that are necessary. For example, we know that food is necessary. But you may need to be creative with your meal. If you have been buying food from restaurants, you may consider preparing your food by yourself. If you are the type that loves going for vacations, you may decide to reduce the number of vacations in a year. Alternatively, you can choose less expensive destinations where you will not need to spend much money on airline tickets and accommodation.
Increase your income
Now that you live on budget and the chunk of your income is being channelled towards paying off debt, you may need to increase you income. This may require that you seek for high paying job or you take on a second job. Any increase in your income should be channelled towards paying off the debt. In fact, this will help you accelerate the repayment process.
Sell unwanted items
If you look around your home, you will find out certain items that are just occupying space. It may not mean that they are not useful but in actual sense, you may not need them. If you are having two or three units of the same item and there is tendency that you can’t use then the same time, you can sell them off in other to generate income.
Stick to your payment terms
At times, you may be tempted to skip your payment due to some financial pressure. Please don’t do. Instead of skipping your payment, it is better you skip other things. For instance, if buying yourself a cloth this month will cause you to miss payment, it is better to postpone the purchase of the cloth and still make do with what you have. Also, you should avoid late payments so that this will not result into increased interest rates. You can’t even afford to jeopardise your credit score again. Making prompt payment toward paying off debt is actually one of the ways you can improve your credit score.
Read Also: Effects of Late Payment on Credit Score
For every major milestone you achieve, don’t forget to celebrate it by rewarding yourself. For instance, if you are used to paying $500 monthly and it has dropped to $400 after finishing paying off a particular debt, nothing stops you from rewarding yourself with the $100 difference in the first month after you completed the payment. This is one of the ways you can keep yourself motivated.
Don’t go back into debt
It feels good to pay off debt or to be live debt free. Now that you have finished paying off the debts, you need to ensure that you don’t accumulate debts again. The best way to avoid going back into debt is to ensure that you pay cash for all your purchases. However, for the purpose of building up your credit, you may like to be using your credit card. There is nothing wrong about this. You need to use the card responsibly. Don’t make any big purchase that you know you cannot pay back. Don’t max out your credit. It will be nice if you can keep your credit utilization ratio below 30%. Then, you should pay off the balance at the end of each month. Don’t make late payment. If you can keep to these, you will be able to build your credit. Gradually, you will see your credit score going up.