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Pay it Back Strategically.
When you’re paying back debts, a little strategy
can make a difference of hundreds or even thousands
of dollars. The best strategy is simple, but effective.
List Your Debts.
Write down a list of every debt you have, how much
it is, and what the interest rate is. You might
have trouble finding this information, but it’s
worth getting it all together in one place and write
it down. You can’t manage your situation strategically
if you don’t even know it, can you?
Remember to include your credit cards (with the
different rates and balances for purchases and cash
advances), other cards, loans, mortgages, and even
money you’ve borrowed from friends and family.
Every bit of debt counts, and you’re trying
to get it down to absolute zero.
Bad Debts and Good Debts.
Go through your debts and mark them ‘good’
or ‘bad’. You might think this is odd,
but some kinds of debt are nowhere near as bad as
others. A mortgage, for example, is an investment
in a house, paid over a fixed term – there’s
no real risk of paying a ridiculous amount of interest
or never getting it paid off, like you could with
a credit card.
Good debts: mortgages, student loans, car loans.
Bad debts: credit cards, store cards.
As a rule, good debts are for a fixed amount of
time and allow you to buy something valuable that
you cannot afford, while bad debts are ‘revolving’
and are just used instead of cash.
Time to Prioritise.
Cross your good debts off your list, for now –
you shouldn’t think about paying them off
more quickly until you’ve got all your bad
debts out of the way.
Now, arrange your debts in order of interest rate,
with the highest interest rate at the top. The chances
are that the debt at the top will be a store card
or credit card, which could have a really huge interest
rate. Try to transfer as much money as you can from
the high-interest cards down the list to the lower-interest
ones.
Once you’ve done that, focus all your energy
on repaying the new top debt. Pay the minimum on
everything else, and throw as much money as you
can find at the problem. If you have any non-essential
monthly commitments, consider cancelling them for
a while, and putting that money towards your payments.
Stop saving, just for a while. Try keeping track
of where your money goes, just for a month –
you might find that you’re spending loads
on something you don’t even want or need.
Do your best to give up any expensive habits you
might have. You’ll be shocked how fast your
debts can go down if you put the money you’d
usually spent on smoking, drinking or gambling towards
them! I’m not trying to spoil your fun here.
You’re just making some small sacrifices for
a while, and your life will be so much better for
it in the long run.
You have to be aggressive against that top debt,
and determined to defeat it. This is a war, you’re
on the attack, and you want to win against your
debt. Don’t you?
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About the Author
Liz Roberts is a loan consultant with NewHorizon
Finance and has been providing consumers
and business owners with financing since 1989.
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