pay down debt http://www.wisebread.com/taxonomy/term/12138/all en-US How to Start Fighting Debt — Today http://www.wisebread.com/how-to-start-fighting-debt-today <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-start-fighting-debt-today" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/free_from_debt.jpg" alt="Freedom from debt" title="Freedom from debt" class="imagecache imagecache-250w" width="250" height="150" /></a> </div> </div> </div> <p>Having once had $20,000 of credit card debt, I know what it feels like to face a Goliath-size stack of bills. Fortunately, I also know the joy of victory over the debt giant. Here&rsquo;s how to wage a successful war against your debts. (See also:&nbsp;<a href="http://www.wisebread.com/when-to-use-savings-to-pay-off-debt">When to Use Savings to Pay Off Debt</a>)</p> <h2>Face the Facts</h2> <p>If you&rsquo;ve ever accidentally cut yourself with a kitchen knife, your first instinct may have been to avoid looking at how bad it was. You just held the cut hand tightly with your good hand, scared to take even a glance.</p> <p>But if you&rsquo;re going to stop the bleeding &mdash; to your hand or your wallet &mdash; you have to take a good, clear look.</p> <p>Financially, that means adding up your debts. Make a list. Who do you owe? How much do you owe to each creditor? And what&rsquo;s the interest rate (APR)?</p> <h2>Stop the Bleeding</h2> <p>Before any forward progress can be made, you need to stop moving backwards. That means committing today to going no further into debt. Two bold steps will help.</p> <p>First, take your credit cards out of your wallet or purse. You don&rsquo;t have to cut them up (or maybe you do). Just get them out of arm&rsquo;s reach so that it&rsquo;s difficult if not impossible to take on more debt.</p> <p>Next, tell someone how much debt you have. Just thinking about taking this step might rearrange your bones. But it&rsquo;ll be one of the most helpful steps you can take. There&rsquo;s something very powerful about getting the news about your debts off of your shoulders alone.</p> <p>Ask this trusted friend to be your encouragement and accountability partner. Invite them to ask you about your progress from time to time. It&rsquo;ll go a long way toward helping you <a href="http://www.mattaboutmoney.com/2011/05/25/tapping-into-the-odd-and-powerful-force-of-momentum/">build and maintain momentum</a> on your journey out of debt.</p> <h2>Fix Your Payments</h2> <p>One of the simplest steps toward accelerated debt repayment is to keep paying the same amount to your creditors each month. You see, if you go no further into debt, then each month your creditors will ask you for a little less.</p> <p>That may seem awfully nice of them, but it isn&rsquo;t kindness. It&rsquo;s math.</p> <p>Your minimum payment is based on a percentage of your balance, so if your balance is going down a little each month, so will your minimum due. Paying this declining minimum is one reason why getting out of debt takes so long.</p> <p>For example, let&rsquo;s say you have a $5,000 credit card balance, and your minimum due is 2% of the balance. This month&rsquo;s required payment is $100. But next month it&rsquo;ll be a little less, and the next month it&rsquo;ll be even less.</p> <p>If your card charges 18% interest and you pay the declining minimum due each month, it&rsquo;ll take you 472 months to get out of debt. That&rsquo;s over 39 years! Along the way, you&rsquo;ll fork over nearly $13,400 in interest.</p> <p>But if you keep paying $100 each month, you&rsquo;ll be out of debt in &ldquo;just&rdquo; 94 months (less than eight years), and you&rsquo;ll pay about $4,300 in interest.</p> <p>Wow. That&rsquo;s a big improvement for just continuing to pay what&rsquo;s due this month every month.</p> <h2>Ask for a Lower Rate</h2> <p>A huge key to successful negotiating is simply working up the courage to <a href="http://www.wisebread.com/how-to-get-what-you-want-on-customer-service-calls">ask for what you want</a>. If you&rsquo;ve been a good credit card customer, making your payments on time each month, call the company and ask for a lower interest rate.</p> <p>Just say, &ldquo;I believe I&rsquo;ve been a good customer of yours, but I need a <a href="http://www.wisebread.com/the-best-low-interest-rate-credit-cards">better rate</a>. Can you help?&rdquo; It will work to your advantage if you have a better offer in hand that you can mention. Maybe you received an offer in the mail or saw a better rate advertised online. If they balk, ask to speak to a supervisor.</p> <p>Sure, they might say no. But if they say yes, lowering your rate from 18% to 14% in the above example will knock your payoff period down to 76 months and your interest payments down to about $2,500. A nice improvement for a 10-minute phone call.</p> <h2>Pay More Than the Fixed Minimum</h2> <p>Of course, if you can find some money to pay more than the fixed minimum each month, you&rsquo;ll be out of debt even faster. Pay $110 a month instead of $100 in the example above, and you&rsquo;ll shave another 10 months and about $350 in interest from your debt payoff plan.</p> <p>By fixing your payments, asking for a lower interest rate, and paying an extra $10 a month, you&rsquo;ve gone from a payoff period of 472 months and interest payments of nearly $13,400 all the way down to 66 months and less than $2,200 in interest.</p> <p>Of course, the more you can put toward your debts, the faster you&rsquo;ll be out of debt. Run some what-if scenarios with different monthly payment amounts using this <a href="http://www.mattaboutmoney.com/resources/calculators/">Accelerated Debt Payoff Calculator</a>.</p> <p><em>If you&rsquo;ve been there and done that with debt, what other steps did you find helpful in getting out of debt?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/how-to-start-fighting-debt-today">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-low-interest-rate-credit-cards">The Best Low Interest Rate Credit Cards</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/a-comprehensive-guide-to-the-debt-snowball-method-0">A Comprehensive Guide to the Debt Snowball Method</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/i-dont-love-capital-one-how-to-get-a-lower-apr-or-possibly-not">How to Get a Lower APR, or Possibly Not</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards">The 5 Best 0% Balance Transfer Credit Cards</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/bankamericard-credit-card-review">Save Money on Interest with the BankAmericard&amp;reg; Credit Card</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management customer service lower interest rate pay down debt Wed, 15 Feb 2012 11:36:21 +0000 Matt Bell 897391 at http://www.wisebread.com A Comprehensive Guide to the Debt Snowball Method http://www.wisebread.com/a-comprehensive-guide-to-the-debt-snowball-method-0 <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/a-comprehensive-guide-to-the-debt-snowball-method-0" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/snowball.jpg" alt="Guys pushing a giant snowball" title="Guys pushing a giant snowball" class="imagecache imagecache-250w" width="250" height="142" /></a> </div> </div> </div> <p>Being in debt isn&rsquo;t just a financial issue; it&rsquo;s an emotional issue. The more debt you have, the more discouraging it can feel. Getting out from under the pile can seem undoable. But it <em>is </em> possible to get out of debt (I paid off $20,000 of credit card debt), and the debt snowball method can help. (See also: <a href="http://www.wisebread.com/a-comprehensive-guide-to-the-envelope-system">A Comprehensive Guide to the Envelope System</a>)</p> <h3>Figure Out Which Debt to Pay Off First</h3> <p>Of course, paying more than the minimum amounts required by your creditors will help you get out of debt as soon as possible. However, if you have multiple debts, <a href="http://www.mattaboutmoney.com/2011/11/02/choosing-the-best-method-for-getting-out-of-debt/">which debt should you pay off first?</a></p> <p>Some personal finance writers say you should focus on your highest-interest-rate debt first (sometimes referred to as the &quot;avalanche method&quot;), while others say it&rsquo;s best to tackle your lowest-balance debt first (the &quot;snowball method&quot;).</p> <p>It&rsquo;s true that going after your highest-interest-rate debt first is usually the route to paying off all of your debts the fastest and paying the absolute least amount in interest. However, going after your lowest-balance debt first is usually the route that&rsquo;ll pay off one of your debts the fastest.</p> <p>Getting one debt completely wiped out feels great, and that can give you the motivation to keep going. The idea is that the lowest balance debt is like a little snowball. Paying it off gets the snowball rolling downhill, building more and more momentum as you pay off more and more of your debts.</p> <h3>Create Your Own Debt Snowball</h3> <p>Using this <a href="http://www.mattaboutmoney.com/resources/calculators/">Accelerated Debt Payoff Calculator</a>, enter the details of all of your debts (credit cards, <a href="http://www.mattaboutmoney.com/2011/04/07/breaking-the-cycle-of-financing-vehicles/">vehicle loans</a>, student loans, and others &mdash; you can even include your mortgage), starting with your lowest-balance debt. You&rsquo;ll find the interest rate on your bill, usually listed as APR or annual percentage rate. For payment amount, enter the minimum monthly payment required by your creditor.</p> <p>At the bottom of the list, enter a monthly amount you&rsquo;re willing to add to the total minimum amounts required. The calculator assumes you&rsquo;ll add this amount to your lowest-balance debt. Once that debt is paid off, it assumes you&rsquo;ll roll the full amount you were paying on that debt into the payment on your next lowest-balance debt.</p> <h3>Fix Your Payments</h3> <p>There&rsquo;s one crucially important point to keep in mind as you go about paying off your debts. You need to <em>fix </em>your payments.</p> <p>Here&rsquo;s what I mean &mdash; let&rsquo;s say you have a $6,000 balance on a credit card that charges 18% <a href="http://www.wisebread.com/the-three-interest-rates">interest</a> and requires a minimum payment of 2% of the balance.</p> <p>This month, the required payment will be $120. That&rsquo;s 2% of the $6,000 balance. However, next month, assuming you didn&rsquo;t charge any more on your card, your required payment will be a little less.</p> <p>Isn&rsquo;t that nice of the credit card company? Of course, it isn&rsquo;t kindness; it&rsquo;s math. Since your balance went down a little bit, your minimum required payment went down a little bit as well.</p> <p>Paying this declining minimum payment will keep you in debt for approximately&hellip;forever! Sticking with our $6,000 debt example, the declining minimum payment route will take you over 42 years to get pay off that debt, and you&rsquo;ll pay another $16,000 in interest.</p> <p>However, if you can afford $120 this month, you can probably afford $120 next month. And if you <em>fix </em>your payments at $120 each month, even when they shower you with kindness and require less, you&rsquo;ll be out of debt in less than nine years.</p> <p>The calculator assumes you&rsquo;ll fix your payments, but <a href="http://www.wisebread.com/6-awesome-credit-card-tricks-that-will-save-you-money">your creditors have no such assumptions</a>. So make sure you&rsquo;re paying the same amount on your debts each month. For the one you&rsquo;re accelerating, if this month&rsquo;s minimum is $100 and you&rsquo;re putting an extra $50 toward it, make sure to pay $150 toward it every month &mdash; not the declining minimum plus $50.</p> <p><em>What&rsquo;s been your experience with getting out of debt? Did you focus on your highest interest rate debt first or your lowest balance debt?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/a-comprehensive-guide-to-the-debt-snowball-method-0">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards">The 5 Best 0% Balance Transfer Credit Cards</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-ways-being-debt-free-can-cost-you">7 Ways Being Debt Free Can Cost You</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-dirty-secrets-of-credit-cards">The Dirty Secrets of Credit Cards</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/do-this-if-you-have-too-much-credit-card-debt">Do This If You Have Too Much Credit Card Debt</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-pay-less-interest-on-your-credit-card-debt">How to Pay Less Interest on Your Credit Card Debt</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management debt snowball interest rates pay down debt Mon, 14 Nov 2011 10:24:49 +0000 Matt Bell 779659 at http://www.wisebread.com