Debt Repayment – Consumer Debt

Nothing feels better than paying off debt.  It is a huge load off of our shoulders and our minds.  Debt is one of those things that nags at us, often subconsciously, throughout our daily lives.  It plagues most of us and causes a lot of strife within our relationships.

We all acquire debt for many different reasons.  Medical expenses are the most common.  Then there is consumer debt – auto loans, credit cards, payment plans, etc.  Mortgages and student loans are big ones too. 

I don’t like consumer debt and the resulting interest at all.  Aside from a mortgage you could potentially spend more on interest from consumer credit debt than any other type of debt.  In some cases even more than your mortgage interest if you have a lot of it.  I have actually seen cases where couples had twice as much consumer debt as what they owed on their mortgage.  Yikes! 

If you are able to make your monthly rent or mortgage without issue and your home is secure then consumer debt is, in my opinion, the first place to focus on with debt repayment. 

Collect all of your monthly obligations and organize them by due dates.  Then select the ones that have the lowest balances.  You will pay those off first.  The old school of thought was to attack the ones with the highest interest rates first but this isn’t always the case.  If you can pay off a smaller balance first then you will be able to free up more money faster to allocate to another debt. 

Make your minimum required payments on all your bills by their due dates and put your extra cash on the one you have selected to pay off first.  Once you have paid off a debt you will then want to apply all of the payment money from that bill to the next bill selected in addition to the minimum payment you were already making.  Continue with these payments until that debt is paid off and then all of that payment money will be applied to your next debt and so on. 

It is the “snowball effect” of debt repayment.  You will be amazed at how quickly this will begin to take shape.  You will also get caught up in the momentum of it and find yourself propelled forward to success. 

If you find yourself with two debts of fairly equal value then this is where I would suggest you pay off the one with the highest interest first. 

Don’t be afraid to contact creditors to let them know what your plans are and ask for payment arrangements and/or for interest reductions.  Quite often, especially with credit card companies, these are options available to you if your account is in good standing.  It never hurts to ask! 

Consolidate and transfer debt from credit cards to lower interest or no interest offers with caution.  There are almost always fees associated with these and if you do decide to do this, make sure you pay it off within the timeline you are given so you are not hit with huge interest charges.  I have actually done this myself and it worked really well when I needed to consolidate a couple of cards into one monthly payment.  I was able to pay off the debt in half the time and even with the initial 3% transfer fee I still saved a ton in interest which made it definitely worth it. 

Check with your bank or credit union to see if re-financing your auto loans is a good option for you.  Your personal banker can show you how much you can save to determine whether this is a good move for you.  The fees should be relatively low or non-existent. 

Debt consolidation loans can be a good option but only if the terms are right.  Watch the interest rates and associated fees and don’t allow your bank to attach your home as collateral.  If this is the only way you can receive this type of financing I would suggest passing this up altogether and find other options.  This is not my favorite form of debt repayment because I think it tends to prolong the inevitable. 

Remember:  The best way to be successful at debt repayment is to stop accumulating new debt.  Put away or cut up the credit cards, don’t go shopping and concentrate on the task at hand.  You’ll love how good you feel when your bills are paid and there is no longer a large amount of debt hanging overhead.