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## Pay Down Debt

Paying off debt will take a huge emotional, as well as financial, burden off of your shoulders and it’s usually easier said than done. To make it a bit easier let’s start at the beginning and lay out a plan:

Make a list of all your debt. There should be a column for the name of the company, the amount of debt, the interest rate, and any notes about the debt.; there’s a great Debt Worksheet in Money Matters: The Get It Done in 1 Minute Workbook. After you have filled in all the columns relating to the debt, you’ll have to decide which strategy you’d like to use to pay down the debt.

Choose a strategy. There are two basic ways that most people decide which debt to pay off first. You can pay it off by which interest rate is higher or which debt amount is smaller.

Pay by interest rate – Once you have all your debt listed on the chart take a look and see which interest rate is the highest and write a number one near it. Find the second and write a number two. Continue numerically ordering them until you have them all in order from highest interest rate to lowest interest rate. You’re going to continue paying the minimum balance on all your accounts; however you’re going to start paying a little extra on the account with the highest interest rate to help pay it off faster. Once the highest interest rate is paid off you’re going to apply all the money that you would have paid (minimum balance plus the extra bit) towards the debt with the second highest interest rate while continuing to pay the minimum on all the other accounts. Once that one is paid off you’ll move on to the third account. People like this method because 1) it helps to cut down on the overall amount of interest you’ll pay back over the lifetime of the loan and 2) it creates a snowball effect that helps get debt paid off quickly.

Pay by debt amount – Once you have all your debt listed on the chart take a look and see which is the smallest amount. Write a number one near it. Find the second lowest amount and write a number two near it. Continue until each debt is in numerical order from lowest amount to highest amount. You’re going to continue paying the minimum balance on all your accounts; however you’re going to start paying a little bit extra on the account with the lowest amount of debt. Once the smallest amount is paid off you’re going to apply the payments you would have made (minimum balance plus the extra bit) to the debt with the next highest amount. Continue this strategy until all debts are paid off. People like this strategy because 1) it feels like you’re accomplishing paying off your debts more quickly and 2) it creates a snowball effect that helps debt get paid off quickly.

Pay aggressively. Once you’ve chosen which strategy you’re going to use to pay the debt off, you’ll need to start paying the debt off as quickly as possible. Use every available dollar to pay down the debt. Those extra payments will pay down the principle amount. With a smaller principle amount, the interest accrued will be less. As the required payments get smaller, continue to make payments aggressively. The quicker you pay off one debt the faster you’ll be able to pay off the rest.

Keep your list somewhere you can see it often and remember that every financial expenditure is taking you one step close, or one step further away, from being wealthy.

Shay Olivarria is the most dynamic financial education speaker working today. She has written three books on personal finance, contributes to multiple online media platforms, and is a foster care alumni. She's been quoted on Bankrate.com, FoxBusiness.com, and The Credit Union Times, among others. Visit www.BiggerThanYourBlock.com to find out more about her work.

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