Getting rid of Debts

So let’s be honest, the upcoming holiday season may cause you to increase your debt load as you hunt for that perfect gift for everyone on your list…
So let’s be honest, the upcoming holiday season may cause you to increase your debt load as you hunt for that perfect gift for everyone on your list. You may be starting to get that sick feeling in your stomach when you let your mind skip ahead to when those bills arrive in January. Don’t get overwhelmed. There are proven strategies to pay down debt and this week we are going to take a look at a few of them so you can decide which one is best for your situation.

Consolidation
This one is pretty self-explanatory. You apply for a larger loan which is used to payout all of the smaller debts. The net result is that you have one payment per month which is often at a much lower rate of interest than those offered on your credit cards. There are 2 types of loans that could be a fit for you.
  • Line of Credit – You can head over to your local bank or mortgage professional and apply for this one. The minimum payment on this is usually only 1% of the balance you carry and the funds are available to use again after you pay down the balance. A note of caution is that if you only ever make the interest only payments you will always owe the same amount.

  • Consolidation Loan – This type of a loan will have a set amount and a finish line. That’s nice when setting a monthly budget. It will not allow you to re-advance the funds after you pay it down which can also be a plus when you are working to get out of debt.

Refinancing Your Home
So the government came in a few years ago and made this much harder to do. The maximum mortgage you can take on your home is 80% of its value through the mainstream lenders and up to 85% through the alternate ones. The benefit is that you can pay out all of your debt and often end up with a substantial monthly savings. The down side is that your debts are now payable over a much longer period which equals a higher total cost of borrowing. You are also looking at legal fees, appraisal costs and possibly a penalty to break your current mortgage. Factor in all the costs when making your decision.

Top Down
This method is a total do it yourself type of process. It will require you be disciplined and methodical for sure. You will first sit down and figure out which credit card has the highest interest rate. Basically, you drop all of the other payments to the minimum amount those companies require. You take the total amount, which would have been paid to all the companies less the minimum payments and pay the first company a larger amount until you hit a $0 balance. Once the first one is paid off you take that amount plus its now gone minimum payment and apply it all to the next account. And so on and so on until you are debt free.

Experts say that writing your goals exponentially increases your chance at success, so be sure to do just that. It’s also really important to celebrate your achievements. Becoming debt free can be really hard, so give yourself a pat on the back each milestone you achieve.

Now that you are enjoying you debt free existence, make sure to be smart enough to put that money into a savings account, then next Christmas you can pay cash and spare yourself the stress that this year brought. Until next time.
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