OSCPA: Four Steps For Paying Down Debt

The Oklahoma Society of Certified Public Accountants (OSCPA) offers the following four tips for consumers trying to cut back on debt. The society also recommends Oklahomans consult a local CPA to find more ways to make your money work for you.

1. Get the big picture. Begin by adding up all your debt. You may be in for a pleasant surprise if you come up with what seems like a reasonable number—or in for a rude awakening if the total is larger than you expected. In either case, before you can create a plan to eliminate debt you must know how much you’ve got. What you find may change how much money you want to pay off each month and how long you can realistically expect your efforts to take.
2. Cut the cards. Now that you know how much you owe, you must take one important step to prevent adding to that amount: Stop using your credit cards. Lowering your existing balances won’t help you if you are only adding to them each month. If doing away with plastic altogether is not possible, budget yourself a specific amount that you can spend on credit monthly and stick to it. Then keep track of everything you spend so that you are sure to stay within your budget.
3. Attack the highest rates first. As a general rule, it’s best to begin by paying off the debts with the highest interest rates because carrying those balances is costing you the most each month. If you’re not sure how much interest you are being charged on each credit balance, check your monthly statement or contact the credit card issuer or lender for more information. If you have a strong payment record, this may also be a good time to try to negotiate a lower rate with all your credit card companies.
4. Pay above the minimum. The longer it takes you to get rid of debt, the more time you will spend paying interest on it. For example, if you have a $3,000 balance at an 18 percent interest rate and pay only a minimum $60 each month, it will take you 26 years to erase that debt. In the meantime, you will end up handing over a total of $6,863 in interest in addition to paying off the original $3,000 debt. Raising your payment to just $100 every month allows you to wipe out your debt in in about three and a half years and slashes your total interest to $1,016. That’s why you should always attempt to pay more than the minimum due on any account. (Use this the free credit card calculator at 360FinancialLiteracy.org to see how changing your payment amounts can alter your situation.