In the current economic times most of us are focused on reducing expenses, minimizing unnecessary purchases and eliminating debt. That sounds like a good idea in theory, but how do we actually do it?
As we all know, budgets can be tricky, difficult to establish and even more challenging to adhere to. Once a budget, also known as a spending plan, is in place we find that by packing a lunch 4 days a week and cutting out daily trips to the local coffee shop, we can save around $300 month. The question is what to do with the extra savings?
There’s a guideline that can help you choose which credit card or loan payment to send that extra money too. It’s called debt roll-up and is easy to do.
Simply make a list of all your debts including credit cards, personal loans, financed furniture, store cards, auto loans, etc. Be sure to note the creditor name, balance, monthly payment and interest rate. Then put them in order by interest rate, the lowest rated debt at the top and highest at the bottom.
Remember that $300 extra you are saving each month? It should be used to pay down the debt at the bottom of the page (Credit Card #2), the one with the highest rate. Once that bill is paid off take the monthly payment you had been paying plus the extra $300 ($285 + $300 = $585), and add it to the payment initially set for the second highest rate creditor. That combined payment ($585 + $115 = $700) is then made until the second creditor is fully paid off, and so on until you are debt free!
In this example it would have taken almost 31 months to pay off all 4 debts by paying the minimum monthly payments, but by using the debt roll-up plan it would reduce that by 10 months! Not only will you be out of debt quicker, you’ll also save more than $1,490 in interest.
You’ll be amazed at the progress of your accounts once the roll-up process begins! Feel free to stop by your local Truliant Member Financial Center and we’ll be happy to help you get started.
About the Author: Emily Perkins is the manager of Truliant’s Clemmons, NC Member Financial Center.
