In tough times,
paying off debt
in order to get control of your finances may seem nearly
impossible. As hard as it may be, though, debt has the potential
to spin you into a downward spiral from which your finances may
never recover. Coming up with a viable strategy to get your debt
paid off can mean the difference between financial security and
living paycheck to paycheck for the rest of your life.
If you're like many people, though, you may have no idea how
to figure out a realistic strategy for paying off debt.
Fortunately, by following some simple guidelines, you can get
yourself on the road to getting yourself out of your debt hole
and putting yourself in a position where
calling the shots with your money. Here are three tips to follow
as you put together a game plan for your financial future.
If you've never realized why paying off debt is so important,
just take a look at the companies that lent you the money in the
first place. For
Bank of America
) , and a host of other card-issuing banks,
credit cards are a huge moneymaker
. Card companies make money from all sides of a transaction,
taking a cut from the merchants where you shop and collecting
interest from you on your outstanding balances, often at
outrageous interest rates. They make it easy to carry huge
balances, offering minimum payments that keep up with finance
charges but can leave you spending years or even decades before
you get your debt paid off in full.
can be even more brutal.
(Nasdaq: EZPW) and other providers make money not just from
interest but also from transaction fees, which can add up quickly
when the term of each loan is only a few weeks.
One smart way to manage debt is to play lenders against each
other. With credit cards, you can often get balance-transfer
offers that give you low interest rates for an introductory
period. Use those offers to your advantage, and you can shave
hundreds of dollars off your monthly payments. Then, when they
expire, try to get another offer before higher rates kick in.
Debt management is like hospital triage. You have limited
money, so you have to use it where it's most needed. If you focus
on paying off debt from the lenders that charge you the highest
interest rates, you'll get yourself out of the downward spiral a
lot faster. Even if you only have an extra $100 per month, paying
down a credit card charging 25% instead of a student loan
charging 5% can save you roughly $120 in interest charges over
the course of a year.
As hard as it is to get rid of your existing debt, it can be
even harder sometimes not to rack that debt back up again after
you've successfully paid some of it off. To help, you may want to
consider some alternatives that will keep you on the straight and
Prepaid debit cards
can be fraught with extra fees and other costs, but the one thing
let you do is carry a balance. With reputable institutions
) offering prepaid cards, increasing competition should help pull
fees back into line over the long run. If you have trouble
resisting the temptation to spend money you don't have, a prepaid
card can help you by setting a limit you can't break.
Whether you're making your first attempt at paying off debt or
have tried unsuccessfully in the past, these simple tips should
give you a decent starting point from which to mount an
offensive. It's never a cakewalk, but getting rid of your debt is
the first step toward creating a promising financial future for
Once you have your debt paid off, you may want to profit from
the lenders that profited from your problems. Bank of America has
a lot going for it, but it also faces plenty of challenges. Learn
all about it in the Fool's premium report on Bank of America, in
which our top banking analysts look at prospects for the company.
Click here and get your report today.
Fool contributor Dan Caplinger thanks his parents for helping
him avoid the debt trap. You can follow him on Twitter
@DanCaplinger. He owns warrants on JPMorgan Chase. The Motley
Fool owns shares of Citigroup, Bank of America, and JPMorgan
Chase. Motley Fool newsletter services have recommended writing a
covered strangle position in American Express. Try any of our
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all hold the same opinions, but we all believe that considering a
diverse range of insights makes us better investors. The Fool's
disclosure policy is always easy.
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