DEBT REDUCTION
One of the biggest hurdles to getting to financial freedom is DEBT!
The very first step in debt reduction is — try not to take any more debt!!
Your next step is to reduce high interest debt like credit card debt to a lower interest rate account. How do you do that?
a) Find out what is the current interest you are paying on your credit card debt. Most credit cards charge you over 29% interest!!! Where do you find the current interest on your credit card?
1)Your credit card statement should give you that information
2) You can call customer service and ask them.
b) Make a list of all the debt you have, along with the annual percent interest you are paying on it. Something like:
| Name | amount_owed | Annual_interest |
| Credit Card 1 | $ 2,500.00 | 29% |
| Credit card 2 | $ 2,750.00 | 35% |
| Personal loan 1 | $ 1,500.00 | 15% |
| Car | $ 7,500.00 | 7% |
| Student loan | $ 40,000.00 | 6% |
c) Talk with your bank/credit union about rolling your credit card debt into a private loan. This can reduce your debt from over 29% to about 15%. To see how much of a difference that will make consider this example:
On $5000 credit card debt, with 29% interest, in one year you will pay $1,450 in interest. Which means that $121 of your monthly payment is going just in interest.
Now if you could roll your credit card debt into a bank personal loan at 15% interest:
On $5000 personal loan debt, with 15% interest, in one year you will pay $750 in interest. Which means that $62.50 of your monthly payment is going in interest. that’s a saving of ($1450 – $750 = $700 per year!!!)
Is that a very high interest rate still? YESSSS. Consider on a savings account, banks are just GIVING YOU roughly 0.5% interest per year, while on credit card they are CHARGING YOU 29% and on personal loan 15% interest.
d) Now comes the question, should you split your monthly payment between all the accounts equally?
Maybe.
My suggestion:
At the least make minimum payments on all your loans first.
After that any extra money that’s left over, put it in the loan with the highest interest. The loan with the highest interest is whats hurting you most.
in the above example “credit card 2” with interest rate of “35%” should be the one you should be putting all your money in, after paying minimum amounts on all accounts.