Ways to Pay Off Debt
As far as personal finance management is concerned, paying our bills on time is a requirement. However, at some point in time, most people have trouble making those bill payments on time. A crucial point to make is that we can all avoid such difficulties by planning for our monthly expenses and managing finances in such a way that we are paying our bills regularly. We achieve this by measuring all of our household obligations while alternately saving for that rainy day. The savings factor is essential in that it allows us to adapt to temporary, unscheduled reductions in income.
One of the first steps in creating a proper financial plan is to collect all the bills that we need to pay on a monthly basis and determine the balance owing of each bill. We can then organize them according to their priority. A great start, particularly if we are like most people and carry credit card balances, is to organize our debt from the highest Annual Percentage Rate (APR) to lowest APR.
Moving along, we add up all our due by payments. These figures are usually the minimum monthly payment required and collectively make up the amount we must pay on a monthly basis. What complicates this step is that we must divide the total monthly among our pay checks. In other words, if we are paid twice per month and all of our bills are due only once, we need to split the monthly dues into two separate pay periods. And who said personal wasnt fun? (No wonder so man budgets fail!)
Obviously, drafting an efficient personal financial plan comes with a certain level of difficulty. Having adequate knowledge about managing personal finances surely helps, but most of us never learned this skill while in school. So, even though paying our bills every month makes perfect sense, throwing a financial plan together doesnt make sense to most of us; it is one of the most painful and tedious chores we will ever complete.
In the worst of times, we might find ourselves short of funds and paying our bills, while a priority, might not happen that particular month. While such instances are unfortunate, we have two options. The first is that we can revisit our stack of bills and determine whether we can modify our overall outflows by getting rid of redundant or unnecessary expenses (an old gym membership, premium cable, cell phone, etc.). The second involves starting over and examining our expenses to see where have an opportunity to amend the terms of our existing credit agreements (or even asking for a raise if our spouse is the one out of work). Doing so could improve cash flow, even if it means paying a slightly higher rate in the short-term. These decisions and actions are never easy, but they can certainly make a difference between starving and maintaining our credit score.
Once we settle on a plan and start really paying our bills, the process of complete debt elimination will seem like the most drawn-out experience of our lives. Unfortunately, there is no quick way around this (unless we dont care about our credit score and the next six to ten years of our credit lives). But remember; no change happens overnight (look at weight loss programs) and paying our bills in full is no exception. One way to stay focused involves creating a strategy where we can not only monitor if we are on track to succeed, but one where we can follow the many small, incremental steps to the end result of paying out all of our debt.
Chris has contributed to the HOmeEquityLoanSite.org, a website that helps people understand the First Time Home Buyer Mortgage process as well as Interest Only Refinance Options.
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