How to Chip Away at Outstanding Debt

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By Tidbits .
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Chipping Away at Debt

It is increasingly obvious that many people have more debt than they can afford. Some folks have debt in the tens and hundreds of thousands. Some “lucky” folks have million-dollar debt. Rather than throw our hands up in despair, there is a way to slowly turn the tide. Here are a few tips for chipping away out the outstanding debt.

Difficulty: Moderate

Instructions

Step 1

Understand how you accumulated the outstanding debt. If your debt was a result of unemployment, medical bills or just plain overspending, get a handle on how the problem happened. Part of resolving a problem is understanding how the problem started. If you had anything to do with your current financial situation (such as overspending and lack of saving), then you have an idea how to get out of it (under spending and start saving).
Step 2

Sign up for an online bill pay service. Whether you sign up through your bank or use services such as Quicken, Paytrust.com, MyCheckFree.com or any of the other available services, its time for you to get electronic with your payments. It is strongly recommended that you use a bill pay service that does not charge a fee (check with your bank).
Step 3

Set up your debts in your online account. When setting up your accounts, double and triple check to ensure that you enter the information correctly. You don’t want to inadvertently send payments to someone else’s account.
Step 4

Become familiar with debt and interest rates. Look at each of your outstanding debts and get a handle on how they charge interest. For example, if your monthly payment is $100 (we’re using round numbers for ease of explanation), and your interest rate is 12%, that means that of the $100 payment, you are paying the principal (the amount outstanding) and interest (how the creditor makes money). Rather than pay the $100 once a month, try sending in two, three or four payments during the month, which total $100. By doing this you are knocking down the principal amount with each partial payment, thus reducing the amount of interest the creditor can charge. In essence, you are reducing your monthly payments quicker.
Step 5

Begin the chipping process. Here’s where the chipping really comes in. Every time you go out and spend money (either cash or from your ATM Debit card), round your purchase up and send the difference electronically to your creditor. For example, if you use your debit card for a purchase of $5.23, round the amount up to $6. Pay the $5.23 for the item you purchased and send the 77 cents electronically to your creditor. If you make 3 purchases throughout the day, send the difference for each purchase to the creditor. Your creditor will probably go crazy, but they won’t ever return the money to you. They will credit your account accordingly.
Step 6

Up the ante. Once you get comfortable with sending in a few cents each day, in addition to your monthly payment, up the amount. Rather than just sending cents, add an additional dollar or two with the payment. Send the payments daily or as often as you make purchases. After all, you’re already accustomed to paying higher prices at the store, why not pad the price and send it to your creditor to reduce your debt?
Step 7

Wealth is in the fragments. “When they had all had enough to eat, he said to his disciples, "Gather the pieces that are left over. Let nothing be wasted." (John 6:12).
It may seem like fragments to you, but it can be your ticket to living debt free.