A mistake a lot of people in debt make is that when a debt or loan is finally paid, they simply absorb that amount of money back into their variable spending budget and in essence, blow the money.  If you split it between your other debts to top up payments, you’ll be debt free MUCH sooner and have more spending money permanently.

Pay Off Debts Sooner!

If you want to pay off your debts, the following method can be very helpful.  There are good debts, bad debts and debts that are a bit of a gray area. The idea is to get rid of the worst debts first. Get rid of the debts that are most negatively impacting your cash flow.  These are debts with high interest rates.

Classify your debts into three categories with your largest interest charging debt with the biggest balance amount at the top. The second tier should be your mid-level interest amounts and the bottom should either be your lowest interest amount or highest loan amount (such as a mortgage that will take longer to pay off.)

Allocate extra money every month to the top amount. You may have to go on a strict budget in order to find additional money to apply to this debt but it’ll be well worth it! Aggressively work to pay it off as soon as possible while still paying payments on tier 2 and tier 3 debts. You’re making all your payments but you’re aggressively paying extra into a specific debt such as a high interest credit card or revolving line of credit. After the tier one debt  is out of the picture, take that amount of money and split it between your other payments. Move the next highest interest debt to the top spot of the pyramid and repeat.

Keep More Of Your Own Money!

The issues here are that you want to remove the highest interest rate loans as fast as possible so you’re putting more of your own money into paying your bills off. The great thing is that once you allocate a specific amount of money to debt repayment, you can continue to use that amount even when your debts become smaller becuase you’ll be paying things off all that much sooner.

If you calculate how much of your hard earned money is going to interest alone each month without even touching the principle of your debts you’d be astonished.

Need help paying debt off? Consider following the Money Jar Budget listed here on the home page.