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How Do You Repay Your Debt?

Jan 3, 2008
There are a million people out there telling you how to pay off your debt. You have to consider your personal spending habits and reasons before you are able to make a debt repayment plan that works for you.

For many it takes a combination of different methods to find a formula for success. There are a few methods you should avoid. Credit card debt is unsecured debt. There are no assets that can be taken if you fail to pay them like you car, home or belongings.

A mortgage, equity loan or line of credit is a secured debt. If you don't pay these you will lose your home. You should also avoid using a 401(k) loan to pay off your debts. Your contributions to your 401(k) are not taxed. When you pay yourself back you are using after-tax money, but you are still losing money.

When you take money out for retirement, you will absolutely be taxed for it again. Not a great financial move. So don't use your home or your retirement as a way to bail yourself out of debt. Create a budget, spend less, pay more on your debt, negotiate with your lenders and work hard.

Mary Hunt is one of the top financial-guru's of our time. Here are her top four recommendations. What sets her apart from all the other authors is that she conquered those same staggering debts in her own life.

No more new debt and this should be self-evident. No debt payoff plan will work, not a one of them, if you're taking on more debt.

If the debts you're currently paying have declining minimum payments, you must pay the same amount every month until those debts are paid. Disregard any declining minimum payments.

Keep paying the same amount towards the debt, or more if possible, month in and month out. After a few months, you're accomplishing exactly what financial pros advise: Always pay more than the minimum.

List your debts according to "duration until payoff" (balance plus interest, divided by payment). The debt with the shortest payoff time goes at the top. From there, list each debt in ascending order, by duration until payoff.

Now rearrange your debts in order of smallest "duration until payoff" to largest. This is the order in which to launch your torpedoes and start sinking those debts.

Another occurrence of the snowball method of debt payoff is to compound your payments. When you pay off one debt in full, take its monthly payment and add it to the payment of the next debt. When that debt is paid off, take its payment money and add it to the next payment and so on.
About the Author
Court provides information about unsecured personal loans and teaches people how to pay off private student loans.
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