I keep running across a common mistake in paying down debt, so want to make something clear.
It does not make sense to pay over the minimum to multiple creditors if your goal is to accelerate debt repayment. In other words if you have $100 to invest in your debt and three creditors with minimums of $25 each, DO NOT pay $33 apiece. A better strategy is to identify which one needs to die first, then do $50/$25/$25 until it’s gone then roll that into $75/$25. It may seem obvious, but it goes against common misconceptions about time value of money.
Your strategy should be derived from your goal. Generally, the best option is to snowball if you have a lot of creditors whereas generally, it’s better to pay higher interest first if you have heavier balances on less creditors. Regardless, the best way to kill debt is to destroy them individually rather than spread yourself out over multiple enemies. If you’ve got small, insignificant debts relative to your income, just kill it and be done with it. Realize that investing your money often doesn’t make sense if you’re deep in debt or the return on investment does not justify taking on liability. You should focus all your extra resources on single creditors while maintaining minimum payment on everything else. I paid off more than $125,000 worth of debt very quickly using this method.
Remember, I absolutely hate debt including yours. If you’re carrying debt that is not a big deal, just kill it and move on. I don’t think there are many creditors that need any more of our money.
Here’s a good link that helps you very concretely determine your best strategy. I used it to help me figure out the fastest payment combination possible given my goals. There’s a massive amount of information out there concerning paying debt and restructuring debt, so if you come across something good let me know.
Don’t forget to save something so that you can become your own credit card company or enjoy your apocalyptic preparations. Okay, now go kick the crap out of a credit card.
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I absolutely agree with this advice. Paying off just one debt completely and as quick as possible, whether it be a card or a car, does snowball into a sooner than expected liberation from debt.
Yep. I think the main difference is having a plan rather than just paying shit every month. I think the way you spend your money says something about you, so you should have a plan while financing your freedom.
This doesn’t mean you have to obsess over it…just set it up and be methodical.
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