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2006-10-09 23:09:08
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Article by Anik Singal |
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It is not uncommon to find someone with multiple forms of debts, including multiple credit cards. You are not alone if you are also in a lot of debt. However, there is a key difference between being in a lot of debt and having a lot of different debts.
The strategy you are about to learn is going to help you if you have a lot of different forms of debt. The strategy is also going to help save your credit score or bring it up if your credit score is already low.
Here are the common debt forms you may have:
- Credit Cards (most common)
- Car Loan
- Personal Bank Loan
- Business Loan
- Home Loan
The main problem is that you are probably moving along paying a portion of each debt every month, little by little. Let's assume you have 5 debts and at the end of the month you have an extra $100 left (after your minimum payments are made).
Most likely, you end up sending $20 extra to each debt, thinking you're doing great because you're now paying more on each debt.
However, that is the WRONG strategy to use in this case. Actually, if you have an extra $100 left over after making all of your minimum payments, you should choose the debt that is the lowest amount and put the full $100 towards that debt alone.
NOTE: Very important that you only do this AFTER all of your minimum payments have been made. If you do not make at least your minimum payments on all the debts, you are going to be in serious trouble.
But, after you have made the minimum payments, you should put every penny of the extra money towards one single debt. Almost always, that extra money should go towards the lowest debt you have.
This way, the goal is that you can completely pay off that debt much quicker and actually CLOSE the account! Closing the account will help you in many ways:
1. Staying organized
2. Reducing number of payments
3. Increasing your credit score!
That's right, the less number of open credit and open accounts you have the better your credit score. That is also why it is important not to just make small "over-payments" but to put all those over-payments into one single debt and get rid of it.
This way, now, as soon as you pay that one off, you will have even more money to start paying #2 off and on and on. Just make sure to always remember to officially CLOSE the account after you pay it off.
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