3 Strategies For Paying Off Your Debts

'A journey of a thousand miles begins with a single step'. Lao Tzu.

Today many people are not unfamiliar with high interest credit cards, indeed, the average American home is burdened by approximately $10, 000 of credit card debts alone; of these about 19 million can only afford to meet the bare minimum on their repayments. There's no point in sugar coating the issue, the road to achieving debt free status with respect to your credit card bills and such like is often a difficult one. If you want to achieve any level of debt reduction it will take time and discipline.

A big factor in trying to climb out of the hole is to plan ahead and develop a strategy for repaying what you owe. One of the main reasons people find it so difficult to get themselves out of debt is due to the fact we live in a society and age which puts emphasis on the materialistic in the hope that the populace will then consume. Unfortunately we are just to familiar with spending like it is going out of fashionIf you are in debt, it's time to tighten the purse strings.

3 Common Approaches To Paying Off Debt

1. Begin With The Smallest Debt First

List all of your debts separately in ascending order from smallest to largest, meet the minimum payment across all accounts and with any left over add it to the smallest account. Once this debt is settled you repeat the process. This process can help out in a big way, the feeling of paying off some of the smaller debts early on definitely helps to put you in a mind set whereby debt reduction becomes a possibility not just an illusion.

2. Start Paying Off The Highest Interest Debt First

Some people are not keen on the first option as they might claim it is not the least expensive way to pay off debt, and in many cases they would be right. However, the mental stress of being financially burdened down by the great weight and pressures of debt can be as serious a cause for mental deterioration as anything. Therefore, that little buzz offered by eradicating a few smaller debts can really help to overcome some of constant strain, which could be vitally important.

By paying off the highest interest debt first you will hopefully make a dint in reducing what might well be the most expensive debt in your 'portfolio'. The method is the same as the first, and although it may well take a while to pay off the debt, by tackling it head on you might well save money by reducing the total interest that is accumulating.

A drawback with going in this direction is that there are no 'quick wins' or moments of feeling like progress is being made, much like joining a gym on January 1st, after a few weeks of training and seeing barely if any results, most people lose motivation. Therefore an idea might be to celebrate little milestones yourself. Treat yourself to dinner out or to a nice jacket you've had your eye on once you've paid off $1500, and have another little celebration at $3500 and so on and so forth. This can help to maintain discipline and motivation in your fight against debt.

3. Pay Off The Debt That Will Most Impact Your Credit Score

For those of you who might be in debt but wish to apply for a loan of some kind in the near future you may desire to improve your credit score/rating. As some types of debt affect your credit score more than others it can make sense to make a start on paying off those such debts first. An example where this might be the option to go with is; if you are near maximum on a line of credit this will badly affect your credit score which ideally (for credit cards) you would want to bring to less than 50% of their respective maximum in order to then affect your credit score positively.

Each of these strategies work in the long run, it is down to you which you feel is the right option for your particular situation. The most important aspect is to maintain the self discipline to set aside money each month and start knocking a few chunks out of your debt asap.

Good Luck! 

*Contributed by Michael David of 'A Classic Gent'

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