If the thought of paying off your debts is simultaneously appealing and overwhelming, these tips may help you get started or keep you going:
- If you have one debt that’s significantly smaller than the others, tackle it first, even if it has a lower interest rate. You’ll feel a tremendous sense of accomplishment – and relief! – when you pay that debt off.
- Rank the debts in the order you are going to pay them off – you can continue to pay off the smallest debt first, or put the debt with the highest interest rate at the top of your list. Use whichever method gives you the greatest sense of accomplishment, because that’s the one you’ll stick with. Put all of your extra money toward the first debt and pay the minimum on the other debts. When you pay off a debt, the next month the money goes toward the next debt on the list.
- Make as many payments toward the principal of the loan as you can. If you receive a monetary gift, send in an extra payment. Hold a garage sale or sell some stuff on eBay. (Click here for tips on holding a successful garage sale.) Sell books you’re not going to read on Amazon (see my previous post about selling on Amazon for more info). Take old clothes to a consignment store or donate them and apply the money you saved on taxes toward your loan.
- Use Bankrate.com‘s loan calculator to figure out your repayment schedule and print it out – each month, you’ll be able to see the balance of your loan go down.
- Set mini-goals and reward yourself. Make a list of little, affordable rewards, like a massage. After you pay off one debt, use the money that you used to put toward that bill to treat yourself. The month after that, start applying the money to the next loan on your list.
Note re. methods #2 and #3: Make sure your lender applies all payments in excess of the minimum toward principal. Some lenders apply extra payments as if they were simply advance payments (i.e., the next payment(s) due), which doesn’t reduce the principal and consequently, the interest that you pay.