Effective Planning: How to Repay Debt PDF Print E-mail
Written by Chris Blanchet   
Thursday, 16 July 2009 14:26
Sometimes just meeting your personal financial needs will result in a large amount of debt. There are many ways you can clear out your debt and effectively manage your personal finance going forward. The best way is to pay the minimum amount first and then gradually work your way to the largest amounts.
by ChrisBlanchet


Sometimes just meeting your personal financial needs will result in a large amount of debt. There are many ways you can clear out your debt and effectively manage your personal finance going forward. The best way is to pay the minimum amount first and then gradually work your way to the largest amounts.

The first thing you should do is prioritize your debt. List each creditor and including total amount due, interest rate charged, and minimum payment due on a monthly basis. With this list in hand, you will see at a quick glance what is owed, how much you need to repay every months, and how which creditor is the biggest culprit in terms of interest rate.

With the completed list before you, determine how much you need to repay to all of your debt on a monthly basis. This means adding up the "monthly minimum due" column. Balance this amount against the funds you have available each month to pay toward your debt. Hopefully, you still have money left over. This amount should then be allocated to the top creditor (i.e. the one that charges you the highest rate). It makes no sense to spread out this extra amount - direct this extra money to your top priority.

One vital element to personal finance management includes putting funds aside in a savings account. However, if you have a large debt load it does not make much sense to save aggressively unless your savings yield greater returns than what you are paying in credit debt (unlikely). Still, even $10 of savings every paycheck will accumulate a surprising balance. This is particularly important when it comes to making lump sum payments against debt or having an emergency reserve for gifts and to satisfy an unplanned urge to splurge.

As a last resort, consider borrowing money from family and friends to repay your higher interest debt. Since money from such sources is normally interest-free, you can repay such loans without having to worry about how much you are "giving away" to creditors who charge (much) higher rates.

When you have a higher debt load, keep in mind that your rate of progress will appear much slower. It is essential that you keep this in mind and not get discourage after several months of making payments and not seeing substantial reductions in the total debt. Remember that almost immediately you will see improvements in your financial situation when you embark on a debt repayment plan. As well, your credit score will start to reward you within months of starting and sticking to a discipline repayment plan.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

Chris Blanchet has more than 16 years of experience as a Financial Advisor at one of the world's largest banks by market capitalization. He maintains a debt-free blog at How to Repay Debt.com. As well, he provides technical investment advice at Online Trader Today.