Excessive debt can be intimidating, especially when attempting to find a way out. When making only monthly minimum payments, it can seem like the debt will take forever to pay off. So for many, the best solution becomes just not thinking about it.
This is not the best course of action.
Although there are no quick fixes, there are options. Some of the best ways to pay down debt are painless. Here are a few ideas that include the best ways to pay off debt.
Renegotiate Interest Rates
An easy action to reduce your debt is to renegotiate the interest rates on your credit cards. Call the customer service representative number on the back of your credit card. Explain that you are dissatisfied with your current interest rate and would like to know if there is a way to get it lowered. If the customer representative won’t help, ask for a supervisor.
Here are some other methods for the best ways to reduce debt:
The Snowball Approach
Massive snowballs start with a handful of snow; so does your debt reduction plan. Begin by working on paying off your smallest debt first, then continue until you have paid off your largest debt. The first step is to write a list of your debts and the amounts you owe, from least amount to largest amount:
$455 store charge card ($45 payment)
$2,000 medical bill ($60 payment)
$5,250 credit card ($140 payment)
$12,000 student loan ($226 payment)
Start by making minimum payments on all your debts, except the one with the lowest amount -store charge card. Every month for this card make as large a payment as you possibly can. When that card is finally paid off, use the same steps and pay as much as you can toward the next lowest debt – the medical bill. Redo these steps until you are able pay off your largest debt – the student loan.
Biweekly Mortgage Payments
The next step is one of the best ways to reduce debt for larger issues. A good technique to produce big savings and more financial well-being is by making biweekly mortgage payments.
In this scenario you pay half your regular mortgage payment every other week instead of the entire payment once a month. With this technique you’ll be paying 13 yearly payments rather than 12.
Your mortgage payment will increase by 1/12th, but the additional amount goes toward your principal. You never pay interest on any part of the mortgage you pay off early. The amount you save can quickly add up.
With a 30-year mortgage for $272,000 at 4.25% APR, this option alone can save you more than $34,000 over the span of your mortgage. You could be paying off your mortgage five years early! The biweekly payment plan also works for other loan types.