Contributing writer: Paying off debt the smart way

Photo courtesy of Pabitra Kaity/Pixabay.

Being debt free is a worthy goal. But with mortgages, car payments, credit cards, and student loans, that’s often unrealistic. However. it is usually possible to better manage the debt.

These tips can help you get started.

Analyze the situation: Assess the amount and type of debt you have, either by writing it down with pencil and paper or by entering the data into a spreadsheet like Microsoft Excel. You can also use an accounting program like Quicken or a debt management app like Debt Manager, Debt Payoff Planner, or, if you’re only concerned about student loan debt, the Changed app.

When compiling or entering your list, be sure to include every instance you can think of where a company has given you something before payment, such as your mortgage, car payment, cards credit, tax liens, student loans, PayPal credit, and in-store payments. or cards.

Record the day the debt started and when it will end, as well as the interest rate you are paying and the typical payment amount. Then add it all up. The goal is to break that down into manageable chunks while finding some extra cash to help pay it back.

If you’re one of the millions who have lost their jobs during the coronavirus pandemic, many auto and student lenders, as well as mortgage and credit card issuers, are offering temporary concessions. Before making payments, call or visit their websites to see what their policies are during the pandemic and if there are deferral options and other steps you can take.

Identify high-cost debts: Even if you haven’t lost your job or been ill due to Covid-19, it never hurts to identify which debts are more expensive than others and pay them off first. The worst offender is consumer debt, such as personal loans, auto loans, and high-interest credit cards.

Credit cards are the easiest to manage, so start with them. As you pay off that debt, remember these tips:

  • Don’t use them. You don’t have to cut them up, just take them out of your wallet, put them in a drawer, and only access the one with the lowest interest rate in an emergency.
  • Identify the card with the highest interest and pay off as much as you can each month and pay the minimum amount due on the other cards. When this is paid, work on the card with the next highest rate.
  • Check your credit cards for balance transfer rates and transfer balances from high interest accounts to a lower interest account. When you pay less interest, you can pay off your debt faster. The catch is that at the end of the balance transfer period (usually six to 12 months), the low or no interest rate reverts to a higher credit card interest rate.
  • Do not close existing maps or open new ones. It won’t help your credit rating and may even hurt it.
  • Pay on time, absolutely every time. Late payments – even one – can lower your FICO score.
  • Review your credit card statements in detail and find monthly charges for things you no longer use or need.
  • Call your credit card companies and ask them nicely if they would lower your interest rates – sometimes it works.

Save, Save, Save: Do whatever you can to pay off your debts, even if it means reassessing your priorities and changing your lifestyle. Consider taking on a second job and using that income only for higher payments on your financial obligations. Replace free family activities with expensive ones. Sell ​​high-value items that you can do without.

Never miss a payment: Not only are you paying off your debts, but you’re also building a great credit score. If you’re buying a house or a car or renting an apartment, you’ll want to have the best credit score possible. A flawless payment record will help. Also, credit card companies can be quick to raise interest rates due to late payment, and a completely missed payment is even worse.

Pay in cash: To avoid increasing your debt, get into the habit of paying for everything you buy with cash or debit/credit card.

Shop wisely and use the savings to pay off your debts: If your family is big enough to warrant it, invest $45-$60 and join a store like Sam’s or Costco and use it. Do your shopping there first, then at the grocery store. Switch brands for a better price if you have to. Use coupons and savings clubs religiously. Calculate the money you save and use it to pay off your debts.

Remember that every penny counts and even if it’s a small amount each month, the savings steadily add up over time. But if you have debt issues that aren’t easy to resolve, you should consider talking to a financial professional.

Norman G. is Managing Partner of Grill & Partners LLC, Chartered Public Accountants and Consultants to Private Companies and High Net Worth Individuals, with offices in Fairfield and Darien.