By Sean Naron, Consumer Federation of America Administrative and Advocacy Associate
As 2013 begins, make sure to give your finances a checkup and discover if you need to make saving your New Year’s resolution. You may discover that you have debt you need to pay down. The best investment most borrowers can make is to pay off any debt with double-digit interest rates they may have.
Try to pay more than the monthly minimum: When you make only the minimum payment, you pay more in interest over the course of the loan. By increasing your monthly credit card or loan payment you will save money by paying less interest and will increase your credit score by showing an ability to repay and decreasing your account balance.
Target either the largest or smallest existing debt. Have multiple credit cards or loans with double-digit interest? After making sure you’re paying at least the minimum payment to all of your credit cards and loans, review your statements to find the range of interest rates you are being charged. There are two different directions you could take: either pay down the account with the highest interest rate first, or target card or loan with the smallest outstanding balance first. Make consistent payments and once one debt is entirely paid, allocate the money you were paying towards the next balance.
Create (and stick to) a budget. If you’re not exactly sure how your credit card statement or loan became so large, figure out where your money goes by recording your daily transactions, and then find ways to save. Budgeting will help you control your expenses and sticking to your budget will keep you from overusing sources of credit in the future. Try to budget so miscellaneous money that, if not used by the end of the month, can be put away for additional savings or used to pay down your debt even faster!
Be patient: Getting out of debt will not happen overnight. You will easily be tempted to continue to accrue additional debt. But by targeting specific debt, paying off as much as you can, as quickly as you can, and sticking to your budget, you will help yourself and your family save successfully for the future; the best way to start the New Year!