There is nothing more discouraging than getting your mail toward the end of the month. Whether it is credit card debt, consumer debt, medical insurance or student loans, it just never seems to end. Many are just trying to make the minimum payments, forget about paying down the accumulating interest.
The problem that many bill payers have is that they approach every loan in the same way. Instead of seeing that each should have a different payment schedule and methodology for keeping high interest at bay, they often just pay what they can and don’t make any considerations to paying down balances in any systematic way.
Statistics released by the Federal Reserve show that the average household has over $7800 in revolving credit cards, which doesn’t even take into account debts like the mortgage, car payments, and other personal loans. To pay down your debt and stop the bleed, you have to approach each type of loan in a specific manner. If you want to get ahead of your accumulating debt, then use the following methods to pay each loan.
You have to make a monthly payment, and most make it month to month, but question whether it is smart to throw more money at the mortgage. Many experts believe that putting more money into your mortgage just doesn’t make good sense. Your mortgage is not as big a liability as other small business loans can be. For one thing, you can write the interest off of your taxes, so there is some benefit to owing the debtor.
Since most people have a mortgage that runs anywhere from 15 to 30 years, it simply doesn’t make sense to be in a rush to pay it off when there are likely other accumulating debts that you have that would make more sense putting money toward.
If you do have the additional income and no other debts, then it does make sense to put more money in per month. The best way to pay off your mortgage is by making an extra payment monthly. You can also consider making your payments bi-weekly instead of monthly. By the end of the year, it will add one extra payment without any sacrifice on your part.
Auto loans are similar to mortgage loans. Since they are a fixed rate, and you already know ahead of time how much you are paying, you may not want to be in a great hurry. Unlike mortgage loans, however, there is no benefit to holding onto the debt. So, if you are going to throw money at either mortgage or auto, auto makes more sense. The best way to get ahead of your auto loan is to make bi-weekly payments here too if you can.
Credit card debt
There is absolutely no benefit to holding onto credit card debt. You want to pay them off as quickly as you can. If you have revolving debt, don’t pay a cent more to any of the other loans you have until you have paid them off in full and keep them at a zero balance.
If you have more than one credit card, then you want to make sure that you know what the percentage rates are. Pay the one with the highest interest rate first. Once you pay it off completely, it might make sense to cut it up and use the lower interest rate cards until you are down to one. Often, before we know it, we have ten cards, maxing them out and then going to the next one. That means you have more than one balance accumulating at once.
Rules to live by when paying off credit cards are to always pay more than the minimum. Just ten dollars a month more will come straight off of the principal, which can add up quickly. If you pay nothing but the minimum, then it just keeps increasing monthly. Before you know it, it gets out of control, and you have gone over the maximum balance. Once that happens, you are likely to owe money for overages. Credit cards should be your first target to pay down debt.
Student loans should just be paid on time. If you can pay more, then they come after credit cards and auto loans, but before overpaying the mortgage. They aren’t going anywhere, and there is a cap on how much interest they can accrue. Since they can be written off, they are okay to put by the wayside and only pay more when you have disposable income to play with.
Paying down debt is never easy, but sticking to a plan and setting schedules and rules for yourself, can have you seeing the black sooner than you think.