How to Pay off Debt Early

Tips to Pay off Debt

ou can save a lot of money if you pay off debts quickly. The methods below will improve your chances. Before you choose one, make sure you understand how to pay off debt early with each lender. There may be fees or special steps you need to take.

Does it Make Sense to Pay off Debt Early?

Sometimes it's a great idea to pay off debt, and sometimes it's a mistake. Explore the pros and cons and then make an informed decision:

You can run numbers to figure out how much you'll save (and possibly get motivated). See how fast you can pay off debt with pre-built Excel loan calculators, or calculate loans on your own.

Just Send Money

The simplest way to pay off debt early is to pay extra whenever you can. It’s also the hardest to pull off since it requires discipline. You may want to consider using one of the techniques below if you don’t think you’ll stick to the program.

If you like to fly by the seat of your pants - and you’re confident that you can pay off debts on your own - just send extra payments. Include a note with your check saying 'Apply to principal'. That way, your lender won’t get confused; they’ll know you’re trying to pay off the debt.

One Extra Payment

You’ll pay off debt more quickly by adding an extra monthly payment each year. If your monthly payment is $1200, then pay an extra $1200 sometime during the year. You might use money from a tax refund or bonus.

If you’re like most people, it can be hard to come up with the extra payment. An alternative is to spread the extra payment out over the entire year. Divide your monthly payment by 12 and add that amount to each monthly payment. Your $1200 payment will become a $1300 payment (1200 divided by 12 equals 100; 100 plus 1200 equals 1300).

Pay off Debt with Biweekly Payments

You can also pay off debt by paying every two weeks instead of every month. You’ll end up making the equivalent of one extra mortgage payment each year. When you pay off debt with a biweekly payment, you shouldn’t see a dramatic change to your monthly expenses. However, you’ll see dramatic savings as you pay off debt over the years.

Lender Programs to Pay off Debt

Your lender may have several options to help you pay off debt more quickly. These programs may require you to pay additional fees, so be careful. If it’s worth it to you, go ahead and pay the fees.

If you don’t like the fees, find a way to pay extra while avoiding the fees. You might set up automatic monthly payments in your bank’s online bill pay system. Be sure the checks include a note saying 'Apply to principal' in the Memo line.

Other companies, besides your lender, will also gladly take a fee for a debt payoff program. They sell software programs and systems to handle everything for you (or at least tell you what to do). You generally don’t need these services unless they’ll help solve a discipline problem. If you’re not getting it done any other way, do whatever works - but make sure you save more than you spend.

Sources : //banking.about.com/od/loans/a/ payoffdebttips. htm

How Bad Credit Affects Your Life

As you're maxing out your credit cards and ignoring your bills, you might not realize the effect it's going to have on your credit. Credit card payments and level of debt have the most impact on your credit score. Mess up in these areas and your credit score will plummet.

"What's the big deal with a low credit score," you might ask. Since so many businesses now judge you based on your credit score, having bad credit can make life extremely difficult from getting a job to getting a place to live. Here are some of the most common side-effects of bad credit.
1. High interest rates on your credit cards and loans
Creditors and lenders see bad credit applicants as riskier than their better credit counterparts. They make you pay for this risk by giving you a higher interest rate. Over time you’ll end up paying more in interest than you would if you have better credit.

2. Credit and loan applications may not be approved
Because creditors and lenders think you’re a risk, they might not want to lend to you at all. You may find that your applications are being denied because of bad credit.
3. Difficulty getting approved for an apartment

Who knew that landlords checked credit before allowing you to sign a lease? It’s true. Having bad credit can leave you homeless or close to it.

4. Security deposits on utilities
Utility companies – electricity, phone, and cable – check your credit as part of the application process. If you have a bad credit history, you may have to pay a security deposit to establish service in your name, even if you’ve always paid your utility bills on time.
5. You can't get a cell phone contract
Yep, cell phone companies check your credit too. They contend that they’re extending a month of service to you, so they need to know how reliable your payments will be. If your credit’s bad, you may have to get a prepaid cell phone or go without one at all.
6. You might get denied for employment
Certain jobs, especially those in the finance industry, require you to have a good credit history. You can actually be turned down for a job because of negative items on your credit report, especially high debt amounts, bankruptcy, or outstanding bills.
7. Higher insurance premiums

Insurance companies check credit too. They say that lower credit scores are linked to higher claims filed. Because of this theory, they check your credit and charge a higher premium to those with lower credit scores, regardless of the number of claims you’ve actually filed.

8. Calls from debt collectors

If you have past due bills, chances are debt collectors are calling you for them. It typically comes with the territory when you have bad credit.

9. Difficulty starting your own business
Many new businesses need banks loans to help fund their startup. A bad credit history can limit the amount you’re able to borrow to start a new business, even if you have the greatest idea and the data to prove it.

10. Difficulty purchasing a car
Banks check your credit before giving you a car loan. With bad credit you might get denied or you might get approved with a high interest rate. Most of those “no credit check” car lots charge extremely high interest rates that make it difficult to make your monthly car payments.
Resources : credit.about.com/od/creditrepair/tp/ bad-credit-side-effects. htm

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