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01-15-2009, 05:51 AM
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#1
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FTJ Bootcamp: Day Fifteen
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Ms. Mommysavers
Last Online: Yesterday 09:09 PM
Join Date: Jul 2006
Location: Southern MN
Real Name: Kim
Posts: 15,877
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Prioritize Paydowns
If you’re struggling with consumer debt, you need to prioritize debt repayment and come up with a plan. Trying to pay down debt without one is like going on a trip without a map. You may reach your destination eventually – but it will take longer to get there and you’ll undoubtedly get frustrated along the way.
Since creating a debt spreadsheet you should have a clear picture of what you’re dealing with. Do you have accounts that are past due? Make it a top priority to get these bills current. Are there any bills with exceedingly high rates? Those should be a top priority as well.
But, after the obvious, which debt should you tackle next? There’s no question that paying off your highest interest debt first makes more sense mathematically. At the end of the day, this method will always result in more money in the bank (Click here for additional reading). However, if you are the type that craves instant gratification (which could be why you’re in debt in the first place) the Snowball Method may be more psychologically rewarding. It’s up to you to decide which method makes the most sense given your own situation and level of motivation.
Here’s how they work:
Snowball Method
· Rank debts in order from the lowest balance to highest
· Make minimum payments on all your debt with the exception of the debt with the lowest balance
· Put any extra money towards the debt with the lowest balance until it has been paid in full
· Repeat the process by always applying extra money to the next debt with the lowest balance
Highest-Rate Method
· Rank debts in order from the highest interest rate to lowest
· Make minimum payments on all your debt with the exception of the debt with the highest interest rate
· Put any extra money towards the debt with the highest interest rate until it has been paid in full
· Repeat the process by always applying extra money to the next debt with the highest rate
How Long Will it Take?
http://www.bankrate.com/brm/calculators/debt-management.asp
http://www.bankrate.com/brm/calculators/creditcards/debt_payoff_calculator.asp
Assignment: Decide which debt repayment method to follow. Organize your debt spreadsheet according to the debt repayment plan you will follow, and calculate how long it will take to pay it off.
Web Resources: http://www.latimes.com/business/investing/la-credit-story12,1,246413.story
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