by Trent Hamm
Available in 24 free installments
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Anything with an interest rate over 9% needs to go as soon as possible. Use the extra money to make double or triple payments on these debts, focusing first on the one with the highest interest rate. When that one's gone, keep going with each successively lower interest rate debt. Here's a detailed program for doing just taht.
Getting Started - What You Need
To get the ball rolling, you're going to need a few items.
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A few sheets of paper and a pen Even though you likely spend quite a bit of time at the computer, this is still a good exercise to do with a few sheets of paper and a pen. Doing this little task by hand adds to the concreteness and importance of the exercise - and there's really no math to do by hand here, either, so you don't have to worry about needing calculation tools.
DEBT FREE AT AGE 28!! Photo by lemonjenny
The latest statement for every single debt you have You'll also need the latest statement on every single debt you have: your mortgage, your auto loans, student loans you're responsible for, any other outstanding consumer loans, credit card statements, and so on. Everything. Make sure that on this statement you can identify the annual interest rate (APR or APY, it's not important to distinguish between the two for the purpose of this exercise).
Making the first listThe first thing you should do is make a list with four columns consisting of the name of each debt you owe, the amount you still owe on that debt, the monthly payment for that debt, and, most importantly, the current interest rate on that debt. You should be able to get all of this information easily from the statements. The goal here is to get all of that information into one place.
Which Debts Take Priority?
Now that you have the list, you can put the statements off to the side - everything you need is now on this one sheet of paper.
Order all of the debts by their current interest rate. Now, go through that list and number the debts based on their interest rate. Give the highest interest a big number 1 off to the left, the next highest a big 2, and so on. Don't worry about which debt has the biggest balance - that doesn't actually matter when figuring out which debt is the most important one to pay off.
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Look for ways to reduce the rates, focusing most strongly on the highest current one. Now that you've ordered the debts, go to the debt marked with a 1. Is there any way you can reduce that interest rate? If it's a credit card debt, you could call the credit card company and ask for a rate reduction [92] , or you could transfer the balance to another card for a lower rate. You might also be able to pay it off with a home equity line of credit or with a personal loan from your credit union. Maybe you can consolidate your student loans at a very low rate. The key is to lower that interest rate. Go through every one of your debts from highest to lowest interest rate and do your best to get each rate nice and low. Obviously, there are some rates you're likely to be unable to easily change, like your mortgage rate, but see what you can do about most of the rest of them.
When you've reduced rates, make a new list reflecting the changes. As you get each rate lowered, update your list - cross off the old rates and write in the new ones, and likely cross off a few lines entirely and add new ones (if you consolidate or do balance transfers). If you wind up with two different interest rates on the same balance - after a balance transfer, for example - write down the interest rate that you'd be paying off first with any extra payments and ignore the other rate.
Once you've lowered all the rates as much as possible, rewrite the whole list so it's clear, except order them directly by their current interest rate with the highest rate on top. This is your debt repayment plan - it will save you a lot of money if you stick with it.
