(Source)

Last week we gave you some tips that hopefully helped you get your debt-reduction plan headed in the right direction. Today we’ll look at some actual strategies you can use to pay off your debts.

In most cases, the best way to pay off your debts is to first tackle the one with the highest interest rate. This method is often recommended by financial experts especially where credit card debt is concerned. It is usually referred to as the ‘high interest’ or ‘crunch’ method. Here’s how it works.

  1. Arrange your list so that the debt with the highest interest rate is at the top and the one with the lowest is at the bottom. Then add up the required minimum payments for all your debts.

  2. In addition to the total of your required minimum payments, decide how much money you can add to this amount. Note: If you’re have difficulty doing this, review your budget again to see if there are some areas you can adjust.

  3. Once you’ve identified the amount you can pay in addition to your required minimum payments, apply that amount to the minimum payment required for your highest interest rate debt. Be sure to continue to pay the minimum balance required for your other debts.

  4. Continue to do this until the first debt is paid off. Now here is where you’ll “crunch”! Take the amount you were paying on that debt and apply it to the minimum payment of your second highest interest rate debt. As before, continue to pay the required minimum payment of the rest of your debts.

  5. Keep “crunching” your payments in the order you’ve listed your debts (from highest to lowest interest rate) until they’re all paid off.

As an alternative, you can arrange your debts from the smallest to largest, then use the same method described above to “crunch” or should I say stack your payments to eliminate your debt. Be sure to choose the method that best fits your needs. Then go ahead and set your debt-reduction plan in motion. Good Luck and stay tuned for more Your Money & You: Managing Your Debt!