If you avoid opening your bills because you don’t know how you’ll ever pay them off, you are like millions of other Americans. For many, debt has become a way of life. It’s often hard to get on top of your finances, let alone make some headway and pay off the debt.
Here are some small steps you can take to eliminate your debt:
1. Contact Your Creditors
Most people don’t know they can contact their creditors and negotiate a smaller balance or lower interest rate. Also, many creditors are willing to work out a lower monthly payment amount. Try to do this before you are sent to collections. Most creditors would rather work out a reduced balance or payment amount than send you to collections, because collections agencies keep a portion of the funds recovered.
2. Avoid Paying The Minimum Amount On Credit Cards
If you can, avoid paying the minimum amount due on your credit card statement. If you are only making the minimum payment, it will take you years and years to pay off the balance. For example, if you have a $5,000 balance on a 15% interest credit card and only pay the minimum, it will take you 266 months–or 22 years!– to pay off the balance. Can’t afford to pay more than the minimum amount due? Read tip 3.
3. Make Bi-Weekly Payments
Credit card companies charge interest each day of the billing cycle. If you make bi-weekly payments, you pay a portion of the principal early in the cycle, which will reduce your average daily balance. If your minimum monthly payment is $200 a month, call your credit card company and ask them if you would be penalized for making two $100 payments.
4. Pay Off Your Smallest Balances First
By working hard to pay off your smallest balances first, you’ll be able to apply that payment amount to the next bill. For example: if you are paying $50 a month on a $320 balance toward one card and $100 a month on a $1,000 balance toward another, try paying $75 a month toward the first card and $75 a month to the next. Once the $320 balance is paid off, you can apply $150 a month to the $1,000 balance.
Best of luck to you on your road to financial freedom!