How to Accelerate Bill Payments to Get Out of Debt

Most Americans are in debt. Climbing out of the hole can feel like struggling against quicksand. Here are some tips to help you along your way to becoming debt free.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• Your budget
• Credit card and loan statements
• Patience and perseverance

1. For the first step you will need your household budget. If you do not already have a budget plan, see "How to Create a Household Budget" in the Resources section. You will need to take a look at your budget and find some "extra" money. Perhaps there is something frivolous you could give up, like daily trips for fancy lattes. Maybe you have everything budgeted with no wiggle room, but you are putting a certain amount each month in savings. Putting money into a savings account that is yielding something like 2-4% while you are carrying balances on credit cards with 17% interest is not helping you at all. Your savings is being eaten alive by debt payments!
2. Look at your credit card and loan statements. Make a list with the name of the creditor, the total balance, the monthly payment and the interest rate. You will then order this list from lowest total balance to highest. If you have two or more debts with the same or similar balances, list the one which charges a higher interest rate first.
   
   Let's say this is the situation:
   
   Target Store Credit Card - $250 - $60/mo - 20%
   Visa - $1200 - $220/mo - 18%
   Mastercard - $1300 - $200/mo - 15%
   Student Loan - $4000 - $150/mo - 3%
   
   Putting $50 per month into a savings account yeilding 3%
3. Take your $50 and add it to the normal monthly payment of the first debt on the list. Now you are paying your Target Store Card $110 per month. This will cut the time to pay off the card nearly in half, saving you quite a bit of money in interest in the process.
4. Once the first debt is paid off completely, roll the payment down to the next creditor. This is called "accelerating" your debt payments.
   
   Take the $110 from Target, add it to the $220 already paid to Visa to get the new payment of $330.
   
   When Visa is paid off, take the $330 and add it to the $200 already paid to Mastercard to get the new payment of $530.
   
   When Mastercard is paid, take the $530 and add it to the $150 already paid on the student loan to get the new payment of $680.
5. In this way you will dramatically decrease the amount of interest you pay out, saving you lots of money. Once you are debt free you can begin to use the money for savings and investments, buying a home, or achieving other goals.

Tips & Warnings

• Create a fund to pay for large purchases. Save toward things you want until you can pay cash.
• This plan assumes that you STOP adding new debt. Cut up your cards if you have to but stop the cycle now.