Debt: It’s something a lot of households in America have but few like to admit or talk about. But that doesn’t make it go away. Here are some useful tips to get out of debt.
First, try to pay more than the minimum monthly amount required on each bill, credit card, or other commitment. Paying only the minimum will result in you spending exorbitant amounts in interest.
Second, concentrate initially on paying the debt that carries the highest interest. Albert Einstein famously said,
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
Here’s why you want to pay off the highest interest rate first. Every balance that you are charged interest on doubles every so often and your creditor knows this. It’s a little thing called the Rule of 72. Divide 72 by your interest rate and that’s how long it takes for your balance to double. So if you have a credit card with a 29% rate and one with a 14% interest rate, you want to pay off the one that doubles in about 2 years (72 divided by 29) before you worry too much about the one that doubles in 5 years (72 divided by 14).
Third, curb your spending habits. This is especially important but often the hardest thing to do. Check back next week for useful tips on how to manage this last but very important part of getting and staying out of debt.