Paying Off Debt 101

What is the simplest way to pay off my debt?

This is a common question most people ask a financial adviser, banker or themselves.

Unfortunately and fortunately there a number of simple ways to pay off your debt. The reason I say unfortunately and fortunately is that it gives everyone hope. Because if there were only one way and you just never could do that one way you would always be in debt.

Simple way #1 is to consolidate all your bills into one payment. Usually you would save some money. Then at that point you should continue to make the same payment.

For example let’s say before the consolidation loan you were paying $900 on all your bills. After the loan your new payment would be $700. The simplest thing to do is to continue to pay $900 on the new loan. This way you will be accelerating the pay off of you bills.

Another reason a bill consolidation loan in good is that usually you are lowering your overall interest rate since some bills will be higher and some lower than your new interest rate.

Simple way #2 is to start paying extra on one bill. This is commonly called Debt Stacking. With simple way #2 you continue to make minimum on all your bills except one. Take all the additional money you are paying on other bills or what you can afford and pay that on one bill. Usually this extra money should go on the lowest balance, not the highest bill or the highest interest rate.

What we are attempting to do with a debt stacking plan is to free up more money the fastest or quickest way possible. This is not accomplished by paying on the highest balance since most likely it would take years to pay off instead on months on a smaller balance.

That’s all for now. Check back again for additional simple ideas to pay off your debt.

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