Steps to Eliminating Debt

Debt is easy to get into. We all buy things on credit,
take loans out to get instant money or pay for goods on
credit cards. Credit can take minutes to build up, but
years to pay off. When debt builds up we end up paying
regular monthly payments that simply increase every time we
get more credit.

The first thing we all have to do to clear debt is stop
getting into any more debt. If you never took out another
loan and cut up your credit cards then after a while you
will pay off all your debt (provided you are making regular
monthly payments).

However, there are lots of clever ways to pay off debt
quicker and help you to become debt free. Simply make a
list of all the debt you have. This is everything that you
pay to a creditor and includes any loans, credit cards,
financed items such as the finance on your car or furniture
and also the big one, your mortgage.

You should know:

1. How much the debt is for or the total amount
2. How much is left to pay off the debt
3. What you pay every month
4. How many months you have left to pay
5. AND the interest rate you are being charged

If you add the amount of debt (number 2 above) you have
left on each one of your debts then this is how much you
owe to creditors. If you then add up all the monthly
payments (number 4 above) then this is what you have to pay
every month. Once you have worked this out then you are in
a good position to start working out the fastest and
cheapest way to clear this debt.

Paying off the debt as quickly as possible:

There are several ways you can pay off debt quickly. Some
will be better than others and it also depends on the type
of debt you have.

The interest pay off - Targeting number 5 on the list above

If you have a credit card or mortgage then you should be
charged interest monthly on the amount of credit you have
left to pay. If you pay off larger amounts off this then
amount you have to pay every month goes down. The more you
pay off the less you have to pay in interest every month.
If you take the credit card or loan that charges you the
highest rate of interest, then paying this off earlier
saves you the most amount of money every month. Once it is
paid off, you move to the next credit with the biggest
interest rate. Because mortgages usually have the lowest
interest rate out of all your loans or credit cards and is
secured debt you should leave this until last on your list.

For some loans, creditors can sometimes charge the entire
interest on the full amount across the time you have to pay
the loan so that if you decide to pay a loan off early, you
may still end up paying the same amount as if you continue
to pay the loan every month. In this case you are probably
better off not paying that specific loan early and focusing
your efforts on a different loan.

The minimum loan pay off - Targeting number 2 on the list
above

If you take a look at all your loans and start paying extra
on the smallest loan then this will be paid off the
fastest. Once you pay this off, take the amount you were
paying on that loan and use it towards paying off the next
smallest loan. Eventually you will again end up with only
your mortgage left which if you use all the money you used
for your other loans this will also be paid off much faster.

The biggest payment pay off - Targeting number 3 (or 4) on
the list above

This works best for small loans with fixed payments and is
great for people who find themselves with lots of loans
with money to pay off on all of them. Because you want to
reduce the amount of time and money you have to use to pay
off the loan you simply target the largest payment you have
to make every month. This may be the loan with the highest
interest or the one the one with the highest balance. Once
you put everything you can into paying this off your
monthly payments will suddenly drop.

You can also do this by targeting the loan that has the
least number of months left to pay off the debt. This will
reduce the monthly payments quicker.

This will leave you with a lot more money every month and
helps to control your finances better especially for people
that struggle to pay off their loans. Clearing the loan
that takes the highest payment every month has the biggest
effect on your bank balance every month. Clearing the loan
that has the least number of monthly payments left has the
fastest effect on your monthly bank balance.

The clever part is to then use the money you save once you
have paid off the loan to pay the other loans off faster
and not to get comfortable with the debt you have left.

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