3 Steps to paying down debt

1. Getting a big picture

First, analyze all your debt (eg. credit cards, loans, etc…) by totaling them all up in say Google Spreedsheets or use a financial analysis app such as Mint or Personal Capital.

Total the debt by left to pay off, and hightest monthly payment. High monthly payments on debt causes you to get into more debt and start to fall under a burden before too long. Tackling debt with the highest monthly payment helps to give you breathing room from month to month to tackle other problems that arise in life. If your mortgage is the highest, don’t tackle that one until the end, the total takes longer to payoff.

For mortgages, try just adding 100 more a month to your payment, this will help payoff the loan faster. You can actually do this will all your loans, but its better to focus on one loan or credit card at a time.

2. Extra money

Second, when you have extra money coming in, tackle the debt you can pay off with that extra money. If you are pretty close to paying off the credit card or loan, pay that one and finish paying it off next month. If you aren’t going to pay anything off completely, tackle the debt that has the highest monthly payments.

Credit cards

Credit card debt should really be tackled first, the interest that accumulates from month to month isn’t fixed like it is with loans. You end up having more and more principal each month based on the previous months fees and interest. Never just pay the minimum if you can get away with it, always pay more. Also, don’t get into the trap of paying the credit card payment, then charging something the interest will still accumulate no matter what part of the month you’ll still be charged a percentage of your total balance.

Credit cards really should be your first debt you tackle before the loans. Start paying the lowest balance credit card off first then move on to the next one. Credit cards also are the debt that affect your credit the most. The available credit and utilization scoring are all related to how much of a balance you have on your credit card vs how much available credit you have on your credit card. Some financial experts tell you to open a credit card that you don’t ever use just to increase your credit score.

3. Snowballing

Third, snowball your monthly payments as you are paying off your debt. The technique of snowballing involves taking the previous monthly debt payment and applying it to the next loan or credit card you are going to tackle. So, let’s say you have a credit card you were paying $50 a month on and you pay that off. You take that $50 and apply it to the next debt on your list say a $100 a month loan. The total payment you start paying on the loan is $150 until that is paid off, and so on.