9 Debt Payment Techniques

9 Debt Payment Techniques
Paying off debt, at it's core, is pretty simple. Just fork over money equal to the debt, right?

For "good" or even reasonable debts (like mortgages, for example) that's exactly what you do. A specific amount is needed every month, and you have to pay it.

It starts to get more difficult if the debt is large. In this situation you try to negotiate. Maybe you can pay in tranches, stretch it out longer, get a month's break in between...

Of course, that's easier to do if the one you owe is a friend or family member. If it's a bank, it's much more difficult - though it might still be possible (so give it a try). Credit card companies are tougher. But the really ruinous ones are the loan sharks and "5-6" lenders. Pawnshops, of course, will also gladly just keep your stuff.

But aside from negotiating, you can try and tighten your belt to free up cash. That way, you might raise enough to pay off the debt.

If things are already tight, you could also try selling some of your stuff. Maybe you have some gadgets, accessories, or furniture that you don't really need.

Alternatively (or in addition; it depends) you could get a side-job. Freelancing, e-lancing, buy-n-sell...

Of course a more complicated problem than a large debt is multiple debts. Maybe you already have a mortgage, was confident about your earning power and got a personal loan, maybe even forgot to track your credit cad, and then an emergency happens - boom! You've now got 4 debts - 2 of which maybe bad, and 1 that could've been avoided.

You have to pay them all. And if you have the money, you can do just that - pay them off at the same time.

But chances are, when you've got multiple debts, you don't really have the money pay them off simultaneously. If you try, you'll just keep drowning in interest.

In this case, you'll have to be more strategic; focus on closing one debt at a time. Pay the minimum on the rest but put all your available funds on paying off one particular debt.

So which debt should you pay off first?

An often-given advice I hear is Dave Ramsey's snowball method - pay off the smallest amount first. It's great advice, because you quickly see debts getting paid off and it just gains momentum from there. It's great for your psyche, which can really take a beating when you get into debt.

The only downside of that strategy is that you could end up paying more in interest. Think about it: You have two debts; both with 5% interest, but one is 5,000 and the other is 50,000. Next month, the larger amount created another 2,500 in interest that you need to pay (which will earn interest itself); the other one created just 250.

Of course, the difference would be exacerbated if the higher amount also had the higher interest interest rate. In that case, if your morale can take it, it would not be a bad idea to pay the debt with the highest interest rate first. It would take longer before paying off a debt, but you end up paying less in interest.

In the end though, whichever set of techniques you use, it's equally important to keep your morale up. Sure, you made a few mistakes (maybe even a lot). But you know better now, and you're doing what you need to. When you pay off your debts completely, you'll be ecstatic. So try not to feel bad when you see how much more you still have to pay. If anything, you should look at what you've been able to pay so far and be incrementally happy. :)

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photo credit: Mark Coggins via photopin cc

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