Did you know that you could be paying hundreds or even thousands more than you have to on your debt? Whether it's a credit card with insane interest rates or a personal loan you needed when your credit wasn't so great, you could greatly cut the costs.
Use the Snowball System
Some financial experts recommend paying off the high-interest cards first. However, Dave Ramsey, suggests the snowball method and it really does make sense. Once you pay off your low interest cards, you have even more money to put towards your high interest cards so you can pay them off faster. Not to mention that you'll be motivated to keep paying off your debt as you see progress, which in the end does save you money.
This is my personal favorite way to save money on debt. It takes a lot of hard work, but you're less likely to rack up additional debt as you free up credit cards, etc.
Another great tip is to call your creditors. If you've been making your payments on time, paying more than minimum, and keeping your balance low compared to your credit line, you can ask for better terms. Some credits are willing to drop annual fees and reduce interest rates for good customers. If the company doesn't want to budge, you can always threaten to transfer your balance to another card.
Put Cash Back to Use
Instead of using your cash back on something frivolous, why not pay your bill with it? It's like paying off your debt with free money. Now that's definitely a savings.
Transfer Debt to a Low or No Interest Credit Card
If you can get approved for, or already have, a low or no interest credit card, transfer your debt to that card. Many credit cards carry 18% or higher interest rates. Transferring those balances could save you a lot of money, especially if you have a high balance. Let's say you have a $3,000 balance on your card and your payment is 2% of your balance and your interest rate is eighteen-percent. If you pay the minimum payment, it will take 370 months to pay off the card and you'll pay over $7,000 in interest. If you move that balance to a 3% interest rate card, you'll pay less than $400 in interest. Talk about a savings.
As soon as you transfer your debt, cancel the original credit card so that you're not tempted to add to your debt by using it for additional purchases.
Last, but not least, consolidate your debt with a lower interest option. Many personal loans have much better interest rates than credit cards. By consolidating, you'll save money on interest and you may find that you're able to pay off debt much faster when you're making one payment instead of several. However, be careful that you don't consolidate your debt and then rack up additional debt on those credit cards that you just cleared.
Do you really want to pay thousands more than you have to? Don't let your debt completely eat up your paycheck. There are ways to save money. Whether you get your interest rates lowered by your creditor or consolidate the bills, you can save money when paying off debt.