How To Pay Off Your Debt

In yesterdays Post I introduced you to a process to quickly get control over your financial situation. But to be in control doesn’t mean that you are changing anything.

In this post I want to share with you some basic ideas on how to pay off your debt.

For this matter I’m going to assume that you are in a financial situation where your income is bigger than your necessary expenses, so that you have at least some money to pay off your debt.

So here we go…

Lower your interests

I suggest that you do everything to get the lowest interest rate possible.

• Ask for lower interests / interest rates.
• take up a loan with a low interest rate to return loans with higher interest rates.

The lower your interest rates, the faster you are able to lower your debt, because you are paying less for interests and more for the actual debt.

So now you are ready to actually pay off some of your loans. If you use bedgets on your money, you should set a budget for monthly payments on your debts.

Pay the minimum rates

Start with paying the minimum payments for all of your liabilities. This way, you keep your creditors calm and friendly.

If you have some more money available, you have different options. Although I don’t suggest that you throw every penny on payments (you should still have a life), it might be wise to put more money onto your debt repayment plan than just the minimum amount.

I suggest that you choose one of the following two options if you want to use more money than the absolute minimum. Although they both might not be ideal from a financial point of view, they have a great positive psychological effect that will keep your motiation high and gives you a feeling of success after a long period of financial failure and misery.

1. Pay off the lowest loan first

Spend the money to pay back the lowest of your loans.

This way, you will have the fastest possible feeling of success when you paid back a whole credit.

Then keep your total amount of money the same, and now put all of your additional money to what is now your lowest loan, and continue the process until you are completely debt free.

2. Save some money

The other idea is to only do the minimum payments, and save your spare money.

This way you see something grow again, and that will cause at least some positive feelings.

And eventually your assets will equal your liabilities. Then you can pay off your liabilities all at once and be debt-free again.

Automate the process

I suggest that you automate the payment, so you don’t have to think too much about your debt, and can concentrate on things that are more fun to do.

• Set up standing orders for recurring payments whenever possible.
• If you use checks to pay the rates, write all the checks at once, so you at least limit the time and attention you use on the topic of debt.

If you have other strategies to pay off your debt, or want to share your own experiences on this topic, please use the comment form or send me a private message using my contact form.

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