Many of us have a hard time paying our debt off, there just never seems to be enough money! Here is an option to help pay off debt, it is the snow ball effect, meaning you start small then build. So what does this mean and how does this effect paying down your debt?
To start you make a list of all your debt, then you start with the one that has either the highest balance or the highest interest rate. Once you have chosen the debt you want to pay off first you then look at the required minimum monthly payment. Now decide what can you afford in your budget to apply just a little more than the minimum, even if this is only $5 extra (obviously the more you can add, the faster you can pay off). Try to rearrange other items you pay monthly to add this “extra” amount. Find ways to cut some costs to free up just a little bit more money a month. Use this as your “extra” to put on top of your required monthly payment.
Once the debt #1 is paid off you then take the amount you were putting towards debt #1 and apply it “on top” of the next debt, debt #2’s minimum balance. You proceed with this until debt#2 is paid, and then do the same towards your next debt. And so and on and so forth, until all debt is paid off! Ex: Debt #1 $100 min + $20 extra = $120 monthly until paid off, then Debt #2 $100 min + Debt #2 $120 = $220 monthly until paid off, Debt #3 $50 min + Debt #2 $220 = $$270, etc.
*Now remember you still pay the required monthly minimum to all your debt and no more, you are only applying the extra to the first debt you are wanting to pay down.
At the end when all debt is paid off you can take the end payment you were making towards your final debt and put this away in a savings. This would be a great start to put money towards a down payment on a home!
Starting is the hardest step and sticking to your goal. Here is a great article from Money Talks with some good money saving and paying down debt help.
Hopefully this tip will help you get started in clearing up some debts. As always if you ever have any questions please give me a call or send me an email.
Summit Mortgage Corporation
303-779-0591 ext. 101