| Debt Management - Getting It Right |
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| Written by Mark Andrade |
| Monday, 19 July 2010 17:52 |
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Most people can implement their own debt repayment plan without any outside help - as long as they don't keep using their credit cards. A well executed plan and commitment to a cash only policy can slowly but surely get you debt-free and teach you how to live within your means. Here are four strategies for paying off your balances to consider, along with the pros and cons.
Most people can implement their own debt repayment plan without any outside help - as long as they don't keep using their credit cards. A well executed plan and commitment to a cash only policy can slowly but surely get you debt-free and teach you how to live within your means. Here are four strategies for paying off your balances to consider, along with the pros and cons. Tackle the Balance Closest to Its Limit First Paying down your high balance debts will improve your credit score and lower the interest you pay over time. Maxed out balances also give creditors a good excuse to raise your rates - not that they need one these days. Tackle the Smallest Balance First This strategy is the fastest way to zero out one of your credit card balances. Some people need to see quick results to keep motivated. However, if you neglect other higher interest debts in favor of this strategy, the short-term incentive can cost you in higher overall interest paid. First Start With The Highest Balance This approach can take a long time to reach your first paid off balance and doesn't offer an immediate impact to your credit score. However, it is the most recommended approach since your largest balance is paid off first which is a huge incentive and can increase your motivation. Try a Mixed Approach Most will benefit from a mixed approach incorporating all three prior strategies. You might consider paying down your balance closest to being maxed out first, then focusing on the one with the highest interest rate. Once you've settled on an initial strategy, focus your energies on the targeted debt. Just pay the minimums on the other balances, until you have paid off your first balance, then re-prioritize. You can eventually become debt-free if you methodically pay off your outstanding balances and don't accumulate any further debt. If you set up an automatic payment plan to pay a set amount on your account each month, the process is even easier and painless. You're less like to be tempted to divert the money to other things and most people just find it's simpler when trying to manage their busy lives. It's time to celebrate once you've reached your goal of paying off all your debts. However, keep those accounts open and don't ask to have your credit limits lowered. Credit scores are negatively impacted when you close accounts or lower limits. So, just enjoy your new debt-free status, unless you simply can't resist the urge to spend more than you can pay off each month. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Visit our website all about Discount Advances which gives practical advice to those experiencing short-term financial difficulties. It also offers information on reliable Cash Lenders, as well as tips on saving, budgeting, and other spending decisions. |