7 Money Tips For Paying Off Big Debt

Climb Out of Your Debt Spiral and Improve Your Credit

7 Money Tips For Paying Off Big Debt
December 15, 2016

Debt is sneaky. Before you realize that you have a problem, you can be so deep in debt that you have problem making payments to all of your creditors. Interest payments start to consume an increasing amount of your paycheck. Your credit score suffers and it becomes increasingly hard for you to get credit when you need it. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.

Once you come to terms with the fact that you have a debt problem, you can start to address it... but how? We have seven tips to help you dig out of debt and restore your faltering credit.

1. Create a Reasonable Budget If we had ten tips, the first four would be budget, budget, budget, and budget. Plan your necessary expenses in advance and leave money for contingencies. If you do not plan and keep track of expenses, any improvements that you make in debt can be overwhelmed with fresh spending.

Make your budget realistic. It will take time to pay off a large debt. Don't make the goal so ambitious that you give up partway through the process.

2. Pay Above the Minimum – The only way to cut into your debt is to make larger payments until you are to the point of paying off your credit card debts each month. As your situation improves, you can make extra payments and cut down the principal on your debts.

3. Apportion Your Payments Wisely – Set up your payment strategy to make the most of the extra cash you are devoting to payments. A common strategy is to make minimum payments to all creditors and then direct the rest toward the higher interest debt (usually credit card debt). Try to blunt the effect of higher interest rates whenever possible. If you want to reduce your interest payments and lower your debt, try the free Debt Optimizer by MoneyTips.

4. Seek Lower Interest – If you have a good enough credit position, you can consider getting a balance transfer card and consolidating all of your debts on one card. With a 0% introductory rate, you may be able to focus all of your payments on principal and sharply cut your future interest payments. However, make sure you can make the full payments on that card and control your spending — otherwise, you will have squandered the opportunity and end up with even larger debt and a higher post-introductory interest rate.

5. Review Income Sources – Are you to the point where overtime or even a second job is necessary? If your debt is large enough, you may have to resort to extra working hours or selling off certain possessions to apply against the debt. Spending can only be cut so far.

Generally, it is a bad idea to dip into savings or sell off investments to pay off debts. However, cash generates little interest right now and your investments could be fair game if the interest piling up on your debt is higher than the income your investments can generate.

6. Negotiate with Your Card Issuer – Card issuers can observe your debt pattern and notice that you are on an unsustainable path. If you are making an effort to turn that path around, most credit card companies are willing to negotiate terms and set up a payment plan that gets you back on the right path. They would rather negotiate than spend the money to take you to court or write off your debt entirely.

"If you're looking to settle previous debts, it's best that you deal directly with either the creditor themselves or the collection agency that now owns that debt," advises Greg McBride, Chief Financial Analyst of Bankrate.com. "You want to deal directly with them because they have the ability to report to the Credit Bureau that it has been fully satisfied once you settle it."

7. Don't Procrastinate – Planning is important, but it's action that will ultimately make the difference. It's easy to fall into a pattern of tinkering with a plan without actually applying. It's more fun to whip out the credit card than it is to cut expenses and think about debt reduction — but that's the behavior that got you in this position in the first place.

Give yourself a pat on the back! You've recognized your debt problem and decided to take steps to deal with it. That puts you ahead of many Americans. Now you just need to make a plan and execute it. It won't be easy, but keep the end goal in mind — no debts, a stellar credit, and freedom from daily financial worries.

If you want to settle outstanding debts for less than what you owe, try our debt settlement tool.

Photo ©iStockphoto.com/pupunkkop

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Alec | 12.14.16 @ 18:09
Due to a situation that popped up Christmas of last year, my husband and I ended up owing more than we're comfortable with. We're using a lot of these tips to try to pay down our credit debt. We've found the most helpful to be paying as much as we can into the debt each month through budgeting around an amount we decided on previously!
Crystal | 12.14.16 @ 18:43
Been there. Still there. I have always tried to pay the minimum and seek out lower interest rate alternatives. This was helpful in planning ahead!
Zanna | 12.14.16 @ 22:08
We have found paying the minimum and then paying whatever more we can on the higher interest rated debt very effective. We're paying our credit cards off every month now, and slowly whittling down the Line of Credit!
Chrisitna | 12.15.16 @ 15:36
These are some great tips to get out of debt more quickly. We are working on paying down credit card debt from a job loss situation and making double the minimum payments is definitely helping that go more quickly.
$commenter.renderDisplayableName() | 11.25.20 @ 05:37