Tuesday, September 14, 2010

Weekly Savings Tip: Prioritizing and Paying off Debt

In the United States, the average person carries approximately $8,000 in debt. As this is an average, it represents total debt figures if assigned to every man, woman and child in the nation. It therefore means many people carry far more than $8,000.If you are one of the many who are currently carrying more than one debt and trying to do your best to pay them off, how do you decide what debt to pay first, and in what order? Here are some quick tips to help you make these decisions.Start by knowing your budget. If you don't know how much money is coming in and going out each month, you can't know how much you have to pay down your debt. Start here.

Pay for the essentials first. If you are behind on alimony, taxes or child support, pay off those first. In many cases, you could literally go to jail if you don't do so.P ay off the debt with the least favorable terms/highest interest rate. Which debt has the highest interest rate? Is it fixed or variable, and is the interest something you can deduct from your taxes? For example, mortgage interest rates can be but car loan interest rates cannot. Any extra money in your budget should go to paying off the worst interest rate, not the highest amount of debt. Once you have this debt dealt with, you can apply the money you were using to the debt next on your list.Personalize these guidelines for your specific situation. Tools are available that can be used to take into account the specifics in your life. 360 Degrees of Financial Literacy has resources, tools and calculators to help you determine the best way to drawn down your debt over time. Visit Feed the Pig for more money-saving tips.