Whether you have a mountain or molehill of debt, now is the time to rid yourself of the burden. Living with debt is more than a headache, it can actually be bad for your health, causing stress-related illnesses like heart disease, high blood pressure, diabetes and some forms of cancer, according to WebMD.
Besides health problems, debt can take a toll on your relationships. In fact, newlywed couples who take on substantial debt become less happy in their marriages over time than couples with little or no debt, according to The National Marriage Project at the University of Virginia.
And then there’s the obvious: debt can tank your credit score, make it more difficult to qualify for financing like home loans and prevent you from saving for retirement, college and other life goals.
Debt can affect your health, heart and pocketbook, but it doesn’t have to. To get out of debt faster and pay less of your hard-earned money in interest, follow these five steps:
1. Create a list of your debts.
Start by getting a copy of your free credit report for an official tally of your debt. Write down each debt in order of highest interest rate to lowest interest rate. Your credit report doesn’t contain interest rate information, so you’ll have to find this on past statements or in your account information online. You’ll also want to include the outstanding balance and minimum monthly payment for each debt.
2. Determine how much “extra” you can afford to pay.
If you only pay the minimum on your debts, you’re in for a long haul. Consider this: the average credit card debt of U.S. households with such debt is $15,519, according to CreditCards.com. If you only paid the minimum monthly payment on this debt, it would take you more than 36 years to pay off your balance completely*. During that time, you would have paid more than $21,000 in interest.
That’s why it’s important to dig deep into your pockets and use whatever extra funds you can find to pay off your debt. Whether it’s an extra $50 a month or $200, it will help you get out of debt faster. Take a look at your budget planner and figure out how much “extra” you can afford to contribute. If there’s nothing left over at the end of the month, consider trying some money saving tactics to increase your monthly surplus.
3. Focus on the debt with the highest interest rate.
Start by focusing your extra money and energy on the debt with the highest interest rate. Do this by applying your extra cash plus the minimum monthly payment to this debt on a monthly basis. While you may be focusing on a single debt at a time, make sure you’re paying at least the minimum payment required each month on the rest of your debts.
4. Roll the funds over to the next debt.
When you’ve paid off the debt with the highest interest, shift your focus to the debt with the next highest interest rate. Here’s the key: not only are you going to pay the minimum monthly payment due on this debt, but you’re going to apply the minimum monthly payment on the debt you just paid off plus the extra funds you’ve found to this monthly payment. If you found a way to make all these payments previously, you can find a way to make these payments now.
By applying this sum to one debt, you’ll pay it off even faster. And with each subsequent debt, the debt payoff process will only accelerate. This payment method is similar to financial author Dave Ramsey’s Debt Snowball, however, instead of focusing on the debt with the lowest balance, you’re focusing on the debt with the highest interest rate, which will save you more in interest in the long-term.
5. Repeat until you’re debt free.
Continue to make your way down your list. As you cross off each debt and move onto the next, remember that you are saving yourself money in interest and will soon be able to enjoy a life without debt. And take it from me, more than two years debt-free, it’s worth it.
Also, check out these other great money-saving articles from the QuizzleWire:
- How to Improve Your Credit Score in 5 Simple Steps
- 55 Money Saving Tips (Your Wallet Will Thank You)
- Getting out of Debt: Which Debt Should You Pay off First?
- Should You Rent or Buy a Home?
- 10 Credit Score Facts and Fictions