How to Pay Off Your Debts

Written by: April Lunar

Any time you owe another person money, you’re technically in debt. However, most of us aren’t concerned with a few outstanding bills when they’re still within the realms of paying according to the plan. It’s when we find ourselves overwhelmed and drowning in debt that worry begins. Yet, millions of Americans are in this exact situation without a foreseeable way out, apart from bankruptcy. Sure, bankruptcy ‘isn’t always as bad as they say it is,’ but let’s face it: if it’s possible to avoid bankruptcy, take every opportunity to dodge the bullet.

What is Debt?

Student loans, car loans, credit cards, medical bills, and mortgages are a few examples of the common types of expenses that lead people to the debt. The manner you pay for your expenses turns them into debt. If you’re a credit card user, miss payments, etc you may very well be on your way to substantial debt. If you’ve found yourself in debt, it’s imperative that you learn the amount of your debt and create a plan that determines how you’ll pay off these expenses.

How Much Debt do You Have?

Calculating debt is a scary experience for most people, but once you know the numbers, you can take action and begin to reduce the amount of money you owe. Don’t let the fear of knowing how much debt you’ve incurred stop you from taking this first and very important step. Find an online debt calculator tool to determine your debt and give you an idea of how quickly you can pay off the amount. 

Avoid These Debt Reduction Strategies

People tend to panic once they discover the actual amount of debt they have; don’t be amongst those people. Not ever debt reduction strategy out there is suitable for your needs, nor should any time be wasted using this strategy. 

– Debt Consolidation: Despite its popularity, debt consolidation techniques rarely work. The loan turns all your debts into a single payment geared toward your budget. While all sounds good at the start, increased interest rates and longer periods of debt aren’t so appealing at the end of the day. If you want out of debt fast, avoid this option altogether.
– Debt Settlement: Debt settlement strategies also rarely work to relieve debt. Debt settlement companies charge a fee with the promise to negotiate the money owed with your creditors. Most companies provide no results, making it basically a scam that you should avoid. Besides, many creditors will negotiate the amount of your debt without anyone else helping if only you talk to them about your debts.
– 401(k) Loans: Do no borrow from your retirement fund to pay off debt. Not only could you get hit with a huge penalty, but you may also be subject to taxes on the withdrawal.

Each of the debt reduction strategies here is risky and do not alleviate the core problem that has caused your money problems. Avoid these risky debt reduction strategies and stick to the techniques that work.

Smart Ways to Pay Off Debt

You don’t need a book of knowledge to pay off debt. Personal finance is only about 20 percent knowledge and 80 percent your other words, if you behave responsibly, the rest is simple. To start your responsible behavior quest, the first step is to budget. Every single dollar that you spend should be accounted for within our budget. Spending more money than you earn will never allow you to get ahead. Make a plan to stay debt-free and don’t rush things. It takes a few weeks to get into a regular budgeting plan.

Pay Off Debt

Once a budget is in place and you know where every dollar you spend is going, it’s time to pay off the debt. Dave Ramsey and other financial gurus recommend using the snowball debt reduction method. This simple plan has you pay off debts in order of the amount, starting with the smallest debts first. Continue making minimum payments on other debts. Once a debt is paid off, repeat the cycle and work your way up the debt ladder. It does take time to pay off debt using this method, dependant upon the actual amount of debt you’ve accrued, but if you attack the debt with a vengeance, you’ll be in the free and clear much faster than you imagined possible.

The Benefits of Paying Off Debt

Benefits of paying off debt are pretty obvious. Once the debt is paid, you have money to invest in the most important things in life, such as homeownership or a new vehicle. But, do not overwhelm yourself by looking too far into things, at least for the time being. Once your debt is paid off, you enjoy peace of mind knowing that it’s not hanging over your head day in and day out. And, you know that it’s easy to maintain or get back on the right financial path to success. When you pay off debts and manage them in the future, it’s easy to live a comfortable life that includes all the things that you want the most. But, you won’t ever get to that point if you do not start trying to make a change. It’s time to take charge of your debt and live without it clogging your life.


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How to Pay Off Your Debts

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