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Pay Off Debts To Manage Money Better
By Ricardo H Geltt

Offloading debts is a crucial part of managing your money. Freeing yourself from debt means more availability of funds for extra expenses and savings, which translates into more money in your bank. But the problem is that this seems pretty unmanageable especially when you are trying to work your way out of a number of loans at the same time. In this kind of a situation, the best way out is to be enterprising and pay off the debt by using an extra payment from one of your loans every month and work them off one by one. Though it seems difficult and requires planning, it is the quickest way to get out of a loan trap.

Now, there are two rules to follow when you apply this technique of money management. The first is to pay all your minimum balances without fail and second is to curtail spending, especially by credit cards. If you follow these two tips you can be sure everything else will fall in place as you work your way out of debt.

The first thing to do is put all of your loans in an order. You will pay them off in the order that they appear on your list. There are two types of lists, but you must pick the type that best fits you. Only choose one way. The first way is to order them from lowest balance to highest balance. The loan with the lowest money balance is placed first on this list (and hence the first loan you will pay off). On the second list, you list the debt in order of highest interest rate to lowest interest rate. The balance is not taken into consideration for this list; just the interest rate.

After deciding on the repayment priority with the help of the list you choose to follow, determine how much extra money, on top of all your minimum balances, can you divert towards

loan payments each month. You take this extra amount of money and put it toward the first loan on your list. This means that if your minimum requirement for repayment on that loan is $50, and you have determined that you can pay an extra $25 each month, you will pay a total of $75 toward the first loan on your list. And for the remaining loans keep paying the minimum balance that you are required to pay each month.

When the first loan is paid off, you can move on to the second priority loan on the list. Since your first loan is already fully paid, you can divert all of the money that you were paying for the first loan repayment towards the second loan. So if there is a minimum balance of $25 to be paid for the second loan, you add the whole of $75 from the first loan towards the second loan and the total amount for second loan repayment will become $100. You will observe that as you pay off complete loans, the repayment for the next loan goes on increasing without having to increase the money you pay each month. And if you can increase this amount that you started with for the first loan repayment then your loans will get paid off even faster.