Forgetting to pay off all of your bills on time might not seem like such a big deal at first, but the debt you accumulate over the months can grow quickly and quietly. Debt can also snowball; once you get behind on your credit card payments you start having to miss car loan and mortgage payments to make up for the high interest on your unpaid bills.
Fortunately, debt can be reduced in the same methodical way that it grows. By saving more than you spend every month you can slowly chip away at your debt until there is none remaining. If you use your monthly savings wisely you can end your debt without ruining yourself financially.
Here are Four Ways to end your Cycle of Debt:
- Spend less. Cut out unnecessary purchases so that you have money to pay down your credit card debt each month. For example, if you buy a four dollar cup of coffee every morning then you should try brewing it at home for less. If you find yourself compulsively using your credit cards then don’t keep them on you and make them available only for emergencies.
- Pay down high interest. All loans have interest rates, but some have much higher rates than others. If you owe payments on more than one loan then you should pay off the loan with the highest interest rate first. The highest interest loan will cost you more for every unpaid dollar each month than the other loans, so take care of it quickly to save money.
- Cash is king. Debt counseling help companies are now advising many people to pay off their debts using their savings, CDs, and 401(k). The reason is that your savings and CDs will only return an average of 4% to 5% while credit card interest rates can sometimes be as high as 18%. You will save more in the long run if you pay off your credit card debt now and rebuild your savings when you don’t have to pay a high interest rate.
- Consider debt consolidation. Debt consolidation can help you lower the interest rate on your debt and give you more time to pay it off by transferring all of your debts into a single loan. You can also pay off the principle faster, because instead of paying multiple bills with different terms and interest rates you only have to pay back a single, lower interest loan.
Managing your debt is possible as long as you work at it diligently. Using the advice above you can start to turn you credit situation around.