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If you find that you’re paying down your debt each month, but your balance doesn’t seem to budge, you may want to take a look at your payment strategy. Here are a few tips to help you make more headway:
Not all types of debt affect your finances equally. To figure out what’s making the biggest impact on your budget, collect recent statements from all of your creditors. Write down the creditor, amount owed, monthly payment, and interest rate on your accounts. (Use this worksheet to refer back to later.) Knowing which debts have the highest minimum monthly payments and interest rates will help you determine which debt is costing you the most.
One strategy that will help you reduce your debt the fastest is to pay the minimum on all of your debts each month – except for the one with the highest rate. On that debt, pay as much as you can afford. This will save you money on interest payments and help you reduce that debt faster. To maximize the amount you can save on interest payments, examine your monthly budget to see where you can cut back, and put that money toward your debts. You might be surprised to see how quickly your debt begins to drop.
If you’re dealing with multiple debts, you may want to consider debt consolidation, or combining all of your debts into a single loan. This allows you to pay off your debt with one monthly payment, which is often much lower than all of your previous monthly payments combined. Depending on your payment strategy, you may end up paying down this larger loan for a longer period of time, so take a look at how these extended payments will impact your financial plan.
Once you’ve determined the best way to pay down your debt, you may want to think about how much debt you can comfortably afford. Tools, such as the Debt Pay Down Solution, can provide additional guidance. This can give you a goal to start with – and help you make smart financial decisions for the future.
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