The World According to Me

Choice 6: What do I pay off first and how much do I pay?

Look at the holders of your debts. They probably include credit card companies, banks and maybe family members. Look at the interest being charged on each loan and the relationship you have with each lender. The order suggested below is a suggested path only.

Pay off the highest interest loans first. This may be a credit card, a pay day loan company or something else. If you can transfer the balance transfer on your highest interest credit card to a lower one start there.

Set an amount above the minimum payment that fits within your budget. Any extra money should go towards this debt.

Continue making the minimum payments on your other debts until you discharge the first one. Move on to the next highest interest and so on until you have discharged all your interest bearing debt. This should go faster as you have money freed up in your budget from the payments that you are no longer making on the disappearing debt.

When it comes to family debt it is best to keep them informed about your progress and your plan. Money can be a real source of tension between families but remember that they love you and are rooting for you to succeed. When you are ready to deal with debt owed to family, make a payment schedule and let them know what it is. Write out post-dated payment checks for them to have and set a repayment date. It is tempting to allow family members to forgive debt. You may here things like, “Oh we never expected to get that back.” Family relationships tend to be healthier if we pay back money we borrow. If things are a gift up front that is different. Money colors how people see themselves in relation to one another so consider that before accepting any offers of help.

If you have a mortgage, know whether you have penalties for early repayment. If not, it may be a good idea to pay off your mortgage early as well. Many mortgages allow increases in payments and one time lump sum payments on a yearly basis. Talk to your bank when you are ready to make that step.

Remember that your debt did not grow in one day and it won’t disappear in one either. It may also seem as big as a mountain but you only have to tackle it one step at a time. Stick with your plan and you will get there!