Most people don’t have one type of credit account. Most of us have our debt spread out in multiple locations. This can often make managing our bills complicated.
If you have many different types of credit accounts – loans, lines of credit, credit cards, overdraft accounts – and want to reduce your overall debt, you will need to get organized first. Start with a file folder and put in your most recent balance statements into this folder. Collect them all, even the ones you don’t use often.
Next, take this folder to a quiet place. Using a calculator and piece of paper or a computer spreadsheet program, you will want to make a list of all your accounts. Organize the list two different ways, one where the smallest balance amount is at the top, the other with the largest interest rate at the top. Then compare these two lists, side by side.
Overall, the two most important steps in eliminating debt are to pay off the smallest balances and the largest interest rates first. By paying off small balances, you gain a sense of satisfaction and reduce your amount of bills to manage. Then, when you pay off the ones with the highest interest rates, you are reducing the ones that cost you the most money to keep. Using this philosophy, tackle your two lists. Pay off any obvious ones (very high interest rates or easy to pay off balances) first.
There are also a few situations to consider while you evaluate your progress. One is that mortgage loans or equity lines of credit should be considered with a different standard. That is because you can deduct the interest on your taxes – an added financial benefit. So, even if those loans might have a higher rate than another loan, pay the other one off first.
The other consideration is that interest rates are not always set in stone. Don’t be afraid to use your list to call your creditors and ask for a reduction before you prioritize. That way you also know which ones will be most flexible.
Once you start this process, stick it through to the end and you will have completed a do it yourself debt reduction plan.
Related Articles:
*DIY Credit Card Debt Reduction
*DIY Debt Reduction
*Do It Your Self Credit Repair