Pay off those Small, Nagging Debts

Do you have so many different debts (many of them of the small, nagging variety) that you often look at them and feel overwhelmed? If so, you're not alone. Although experts often advise that it's better to pay off credit cards or other debts with high interest rates first, everyone isn't exactly alike – especially when it comes to mindsets. Perhaps, in your case, paying off the more diminutive debts first will give you the incentive, confidence and momentum to put together a monthly budget and eventually pay off all that you owe. So, here are some suggestions that will help you to pay off those smaller financial obligations.

Make a list of all the smaller debts you have and try to increase what you pay toward them monthly; that is, take what you can afford to put aside after all the household bills have been paid, and add it to those minimum amounts due. The satisfaction of paying off just one small debt will motivate you to move on to the next one, and the next after that. After you've paid off that first bill, start paying off the second debt utilizing the money freed up from no longer owing the first debt. For example, if you paid $50 minimum and added an additional $25 for the first debt, now that it's paid off add that 'freed-up' $75 on top of the minimum due for the second debt. This method is referred to as the Debt Snowball and it's a very effective debt repayment plan.

The best way to determine how much you can earmark from each paycheck for additional debt payments is to establish a budget. Of course, you'll want to list the essentials expenses first, such as your mortgage or rent, food, utilities, and retirement contributions. The amount you have left will determine what you can additionally put toward your debts without too much discomfort. If the amount is small, don't worry about it. The idea is simply to pay more than the minimum due consistently each month. Let's look at a quick example: if you have a debt of $4000 at 18 percent interest, it would take you approximately 291 months to retire it completely with a minimum required payment of $100 monthly. However, if you were to add only $25 more to that minimum amount, the debt could be paid off in just 44 months. Moreover, while the accrued interest on the minimum-payment numbers comes to over $5,600, paying the small extra amount each month would cut the total interest to just under $1,500. Amazing, isn't it?

Keep in mind, however, that the quickest way to get out from under any kind of debt – whether large or small – is to make a few sacrifices. Find ways to save on superfluous spending; there are at least a thousand and one things that you can do to save money. And every bit saved can bring you closer and closer to a debt-free life. Ah, how wonderful it will be!

blog comments powered by Disqus