Paying Down Debt

July 16, 2012

Tiffany Ching, Union Bank, N.A., Senior Vice President and Regional Manager

Eliminating debt is one of the fastest ways to free up money for savings, investments and other long-term financial goals. Credit card bills, student loans and other debt are not only a burden on a budget, but the balances almost always accumulate interest, adding to your debt.

For some, paying down debt may seem overwhelming, but by putting a plan in place, you may be able to pay off your debt sooner, with less interest, while possibly improving your credit score.

Following are some tips to help you pay down debt with the goal of saving more for the future:

Get a Handle on How Much You Owe

Start by listing the outstanding balance, interest rate, minimum payment and due date for each of your debt accounts. This information can easily be found on your most recent monthly statement.  Keep a calendar to remind you of due dates, set up automatic payments where you have that option, and continue to make timely monthly payments on each account.

Pay with Cash

Avoid sinking deeper into debt by putting away the credit cards and paying with cash.  Paying with cash provides greater awareness of how much you are spending and helps you determine if you are living within your means.  Also, it is wise to establish an emergency fund so you won’t be tempted to use credit if your car breaks down or you have unexpected medical expenses.

Develop a Budget

Create a household budget that makes paying down debt a priority. Look closely at your spending habits and determine where you might be able to cut expenses and put that money toward your debt.  Plan to set aside your tax return, monetary gifts or other windfalls to pay down debt.

Renegotiate with Your Creditors

Call your credit card company and ask for a lower interest rate.  If you notice that mortgage rates have dropped two or more points lower than what you are paying, you might consider refinancing your home mortgage at a lower interest rate.  If you have been paying your bills on time and have a favorable credit score, your creditors may be willing to work with you.

Pay More than the Minimum Due
Resist the temptation of paying only the minimum required each month. When you make only the minimum payment (usually 2 to 3 percent of the outstanding balance) you’re doing little more than paying finance charges. Paying the minimum amount extends the time it takes to repay the charges, compounding the amount of interest that you will end up paying over time. It may be wise to tackle high interest debt accounts first, paying the minimum balance on all other accounts and allocating extra cash to the debt with the highest interest rate. This will help you pay off your total debt faster, and you will pay less interest.

The foregoing article is intended to provide general information about paying down debt and is not considered financial advice from Union Bank.  Please consult your financial or tax advisor.

Tiffany Ching is a senior vice president and regional manager for Union Bank, N.A.  Union Bank, N.A., is a full-service commercial bank providing an array of financial services to individuals, small businesses, middle-market companies, and major corporations. The bank operates 407 branches in California, Washington, Oregon, Texas, New York and Illinois, as well as two international offices, on March 31, 2012. UnionBanCal Corporation is a wholly-owned subsidiary of The Bank of Tokyo-Mitsubishi UFJ, Ltd., which is a subsidiary of Mitsubishi UFJ Financial Group, Inc. Union Bank is a proud member of the Mitsubishi UFJ Financial Group (MUFG, NYSE:MTU), one of the world’s largest financial organizations. Visit www.unionbank.com for more information.

For more resources on debt and saving, check out these other resources:

Positive Peer Pressure and the Envelopes in the Cupboard: Adolescents Now Prioritizing Saving

5 Signs You Are In Financial Trouble

Dig Yourself Out of Debt Action Plan

New Theme: Paying Off High-Cost Debt

Get out of Debt

 

Tip of the Day

  • Written by Katie Bryan | November 22, 2013

    Find places to cut your #spending so that you can pay down #debt faster: http://ow.ly/fzT2h  

Saver Stories View all »

Building a Six-Figure Savings While Enjoying Life

Written by Jackie Toops | November 13, 2020

Does the idea of saving up hundreds of thousands of dollars seem impossible? How about doing it while still living an enjoyable lifestyle?

For military spouse Martina and her husband, an E-5 in the Navy, accumulating a six-figure savings has become a reality. One might think that in order to save this much, it would take a great deal of sacrificing and forgoing a certain quality of life, but Martina and her husband would disagree. “Over the past few years (about five), we've managed to save almost $120,000 while mostly living on one income. We've learned so much about easy ways to save money and live a good life,” shares Martina.

Read more...

Setting a Goal Leads to Success

Written by Super User | May 24, 2019

Growing up, Marisa’s dad had always talked about saving first, but she said she didn’t really internalize it until much later. “I was drifting along with no plan, carrying a little bit of revolving debt, saving some money here and there, but without a real plan for it.”

Read more...

Making Saving Automatic Leads to Personal Success

Written by Lila Quintiliani | May 27, 2020

Ryan’s savings journey started when he was an active duty airman. Frequent deployments and temporary duty assignments gave him the opportunity to save. By the time he transitioned out of active duty, he had built up a healthy rainy-day fund and had started to aggressively save for retirement.

Read more...