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Reducing debt is one of the most important decisions you will ever make for yourself, and on behalf of your entire family. It’s truly a noble goal worth the effort. Assuming now that you’ve committed yourself to reducing and/or eliminating debt from your life, the question is: What’s the best way to go about it? There are a few different schools of thought, which we’ll discuss and offer our recommendations. One method of reducing debt is to pay off the biggest debt first. The reasoning is that since it’s the biggest, it’s the one racking up the most interest, and therefore the one that’s costing you the most. Another method is to pay off the debt with the highest interest rate. Even if the amount itself is smaller than others, that high interest rate is costing you an arm and a leg in finance charges every month. However, we recommend a different system for reducing debt, one that may sound counter-intuitive at first, but it’s actually far superior. The system we recommend is this: Pay off your debts one at a time, starting with the one with the SMALLEST balance. Specifically, here’s what you do. Make a list of your debts, from smallest to largest. Then aggressively attack that smallest debt, paying every penny you possibly can, every month until it’s gone. (In the meantime, make only the minimum payments on the other debts.) Once the smallest debt is paid off, apply that payment to the minimum payment you’ve been making on the next-smallest debt. With the first debt out of the way, take the money you were paying on the first debt and apply it toward the next debt. Now you’re rolling! Now you have traction. The momentum you’ll feel will energize you to tackle the next debt with even more intensity. See how quickly you can start winning while you are paying down your debt? This process is what many call the “debt snowball” effect. You’ll gain fast momentum using this strategy, and it makes it easier to attack the progressively larger debts. By the time you get to the largest debt, you’ll have freed up hundreds of dollars in “extra” money every month, money that used to be earmarked for making debt payments, but which can now go toward this final debt balance. There are psychological advantages to this method of reducing debt, too, and they are very important. When you attack that smallest debt, you’ll probably be able to get it paid off in a few months. That’s a win! The more small battles you win, the more confident you’ll feel about winning the overall war. If you were to attack the largest debt first, it would be months – possibly years - before you actually paid it off. You’re only human; you’re bound to get discouraged at what seems like an insurmountable task. So by paying off the smallest balance first, you ensure you’ll get to experience those personal “wins” much more regularly, and that will keep you motivated and inspired to keep on going toward the finish line. In relatively no time at all you’ll be able to join the growing ranks of people who have sworn off debt and are committed to living and prospering from a debt free lifestyle.
Article Source: http://www.content.onlypunjab.com
These debt reduction tips, and many others, can be found at www.Debt-to-Income.com, which is a new website that was created by money savings expert, Richard Gorham. Gorham is also the founder and President of www.Leadership-Tools.com and www.LeadershipAudio.com His websites are devoted to providing free and low-cost quality tools and resources for successful living.
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