Sunday, September 25, 2011

Extraordinary Ways to Pay Off Debt

The recession is not over. Unemployment is still at 9.1%. Over 1,000,000 Americans have foreclosed on their homes last year. If you employed and are in debt, get out of debt as soon as possible. The future is unknown. Americans have to plan for their future which includes eliminating debt, saving and investing. It took a long time to get into debt and will take a long time to get out of debt – but with patience, sacrifice and dedication you can live a debt free life.

A budget is a critical component of paying down debt and determining how much money you earn, you owe and you spend. This can be done using a tool or pen and paper either daily, weekly or monthly. One critical component of getting out of and staying out of debt is creating an emergency fund.

A unique way to get out of debt is to follow the Voluntary Simplicity Movement which only allows for purchasing basic necessities. Pay down debt using online banking or automatic paycheck deductions. Here are 13 ways to pay down debt.

Car Loans

1. Shorten time. Get a car loan for 4 years or less. Then pay off the loan before the payoff date. Cars depreciate quickly and lose most of their value for loans that are extended beyond 5 years.
2. Interest. If your interest rate is higher than 6%, after six months refinance to get a lower interest rate.
3. Maintenance. Keep your car well maintained and visit a mechanic using the factory suggestions which helps saves money. Keep your car for at least 7 years instead of trading it in to get a new one.
4. Insurance. Keep your car properly insured with affordable deductibles. Paying high deductibles saves you money upfront but causes you to spend more money on accident repairs and delays getting much needed repairs.


1. ARMs. Avoid getting ARMs or balloon payments. These are risky options. If you must get an ARM or balloon payment get mortgage insurance that pays your mortgage payment if you become disabled or lose your job.
2. Refinance. If your interest rate is higher than 6%, after six months refinance to get a lower interest rate. This will reduce your monthly payment and save you money over the life of the loan.
3. Pay off. Send extra money towards your principal to pay your mortgage off faster. Don’t retire until your home is paid off. Once you have at least 20% equity in your home under a conventional loan you no longer have to pay PMI so ask your lender to re-assess your home to have it removed. This will save you money on your monthly payment.
4. Avoid borrowing equity. Avoid borrowing equity against your home to pay down credit card or other debt, go on vacation or pay for home repairs. If you default on the home equity loan or home line or credit you risk losing your home and this will lower your credit score.

Credit Cards

1. Pay more. Pay more than the minimum monthly payment. Pay the balance in full each month or pay multiple times a month by sending a payment each week or during each pay period.
2. Stay low. Keep credit card balances at 20% or less of the credit limit to keep debt low. Debt should be no more than 15% of your total monthly budget after taxes. Credit cards with balances at 30% or above the limit will lower your credit score.
3. Stop spending. Skip using your credit card like a debit card. Charges can add up quickly. Leave your credit cards at home. Use credit card for emergencies only. Pay for items with cash. If you don’t have the money to pay for it, don’t buy it.
4. Avoid quick fixes. Avoid getting a cash advance or balance transfers. Interest rates on cash advances are higher than the regular credit card interest rate and can cause your credit card balance to quickly increase. A balance transfer is just a band-aid solution and can cause you to go deeper into debt once the promotion expires.
5. Waive fees. If your account is in good standing call the credit card company and ask them to waive any late fees or other fees.

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