Debt Guide: Payoff Your Loan Debt

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• Is this the right option for you:
  this may be an ideal option if your total credit card debt is minimal and if you can budget enough disposal income to payoff your credit cards within 6-18 months.
  
  This option will give you the best credit rating protection.
  
  
  
• Start by listing your cards:
  open calc window and list each credit card that has a debt balance. Insert the balance amount with its respective interest rate (APR). Hit "Calculate" to total your numbers.
  
  Note the card that is charging the highest interest rate — this is the credit card balance that you will pay off first.
  
  Go ahead and print this calc sheet for reference.
  
  
  
• Estimate your repayment schedule:
  scroll down the calc window to schedule an allocated amount each month that can pay down your selected high interest-rate credit card.
  
  Include in your budget plan the amount you will need to make minimum payments on all other cards.
  
  View our topic on budget and spending plans
  
  Go ahead and print this calc sheet for reference.
  
  
  
• Reduce your monthly expenses:
  as you pay down your credit card, review our section on lowering your monthly bills in housing, transportation, living, recreation, and more.
  
  Click to view "lowering your bills"
  
  Your monthly cost savings can be used to pay down your credit card faster.
  
  
  
• Continue payoff:
  once you pay down your high interest-rate credit card, find the next highest interest-rate card and schedule a new repayment plan.
  
  Repeat these steps for each card — paying down the highest interest-rate card first, and on down to the lowest interest-rate card.
  
  
  
• Important note:
  be sure to review our topic on credit card management and use — you want to avoid getting yourself back in debt with your credit cards.

• Is this the right option for you:
  this may be an ideal option if you have significant credit card debt that can be paid off within a short period (12-36 months) and if you maintain a good-to-better credit rating
  
  for information about your credit rating: visit our affiliated site at SayPlanning.com
  
  
  
• Find transfer balance programs:
  if you have a good credit rating, card issuers will solicit you with attractive credit card consolidation (transfer balance) programs.
  
  You may also contact your current credit card issuer about transferring and consolidating other credit card debt.
  
  Inform them that you are shopping to consolidate all or part of your credit card debt under one card — if your credit rating is good, they will want to keep you as a customer.
  
  Find the transfer program that offers a super low interest rate at transfer terms of 6 or more months. Anything less than 6 months is not worth the trouble. Also avoid programs that charge a transfer fee. The fee will wipe away your low-interest savings.
  
  Link to our credit card listing for debt transfer programs
  
  Make sure you read the fine print.
  
  
  
• List your cards:
  open calc window and list each credit card that has a debt balance. Insert the balance amount with its respective interest rate (APR). Hit "Calculate" to total your numbers.
  
  Go ahead and print this calc sheet for reference.
  
  
  
• Payoff your cards:
  take the transfer program that offers the best terms — lowest rate, longest term, and zero transfer fees. Use the program's transfer checks to payoff those credit cards listed in calc window that have the highest interest rate charges.
  
  If your total credit card debt exceeds the transfer program's credit limit, you may need to use a second or third balance transfer program.
  
  
  
• Schedule your pay down amount:
  scroll down the calc window to schedule a payoff amount that significantly reduces your consolidated amount during the transfer period.
  
  Go ahead and print this calc sheet for reference.
  
  
  
• Maintain terms:
  since most transfer programs offer card consolidation terms of 6-12 or more months — significantly lesser time than what you may need to payoff your card debt — you may need to play the transfer game when one program ends and another begins.
  
  Keep note of other transfer balance offers that come in the mail — hold on to those offers that carry attractive terms.
  
  Be careful not to jump to another transfer program within short periods. Every time you sign up for a transfer program, an inquiry is made to your credit report. You want to limit credit inquiries to "one" inquiry every "six or more" months.
  
  See our discussion on maintaining a good credit rating at our parent site SayPlanning.com
  
  
  
• Payoff amount:
  if your budgeted monthly payment does not payoff your credit card debt with 12-24 months, you may need to consider a debt consolidation program under Option 3 below.
  
  
  
• Try to lower your other living costs:
  as you pay down your credit card, review our section on lowering your monthly bills in housing, transportation, living, recreation, and more. Your monthly cost savings can be used to pay down your credit card debt faster.
  
  Click to view "lowering your bills"
  
  
  
• Important note:
  tuck the credit card that has your transfer balance away. Do not use the credit card for any credit card purchases. You want to avoid interest being charged on everyday purchases. Use a different credit card for purchases so that you can take advantage of the 25-day grace period.
  
  be sure to review our topic on credit card management and use — you want to avoid getting yourself back in debt with your credit cards.

• Is this the right option for you:
  this may be an ideal option if your budget allows for an extra amount each month to be used to quickly payoff your loans.
  
  You may consider consolidating your existing loans under a lower repayment plan: See Option 2: Consolidate Your Loan.
  
  
  
• First thing: analyze your budget:
  analyze your monthly budget to determine how much money you can allocate for this payoff plan.
  
  Link to our budget planning worksheet at our parent site
  
  
  
• Identity and list your loans:
  open this calc window to identify the loans that you would like to payoff. List the loans in order from the lowest loan balance to the highest.
  
  Go ahead and print this calc sheet for reference.
  
  
  Let's illustrate this concept by using the following loan balances with a period of 5 years before the final loan is paid (assuming no additional debt):
  
  

  	Balance	Payment	Rate
  Loan1	$800	$32	12.5%
  Loan2	$1200	$40	12.5%
  Loan3	$2777	$67	12.5%
  Loan4	$8530	$175	8.00%
  Loan5	$18997	$453	6.75%
  Total Period to payoff final loan: 5 years

  
  
  
• Group your loans:
  group the 2 low-balance loans together and pay them off within 6-12 months.
  
  (You may use a credit card transfer program to get the low transfer interest rate during your payoff period: see our credit card section).
  
  Once you payoff these two loans, group the next low-balance loan and pay it off quickly over 12-24 months.
  
  Payoff grouping builds a momentum where you erase 1-2 loans quickly from your monthly payment plan. The savings can then be applied to other monthly loan payments to reduce your aggregate loan balance quickly.
  
  Example:
  
  Take the first two loans on your list (Loan1 and Loan2) and group them together.
  
  Set a budgeted payoff plan within 9 months:
  
  — your payoff balance: $2000
  — current debt payment: $72 ($32+$40)
  — additional payment needed to payoff within 9 months: $162
  — (see calculation)
  
  — total monthly payoff amount: $234 ($72+$162)
  
  The extra $162 per month will need to come from budget planning by reducing other monthly expenses:
  
  link to our bill reduction plans: click here for lowering your bills
  
  note that you will still continue to pay on your other outstanding loan debt
  
  
  
• Payoff and group again:
  once you have successfully paid off the two low-balance loans in 9 months, your current loan portfolio will look like this (assuming no additional debt and continued payment reduction on your other loans):
  
  

  	Balance	Payment	Rate
  Loan1	$0	$0	12.5%
  Loan2	$0	$0	12.5%
  Loan3	$2372	$67	12.5%
  Loan4	$7308	$175	8.00%
  Loan5	$15450	$453	6.75%

  
  Now take the next loan and apply the same payoff proceeds to this loan:
  
  — your payoff balance: $2372
  — monthly payoff amount: $301 ($234 above + $67 current pay)
  — time needed to payoff: 8.3 months (see calculation)
  
  Now after 9 months, you current loan portfolio looks like this (assuming no additional debt and continued payment reduction on your other loans):
  
  

  	Balance	Payment	Rate
  Loan1	$0	$0	12.5%
  Loan2	$0	$0	12.5%
  Loan3	$0	$0	12.5%
  Loan4	$6004	$175	8.00%
  Loan5	$11698	$453	6.75%

  
  
  
  
• Continue payoff:
  continue your group payoff by taking the next loan and applying the same payoff proceeds:
  
  — your payoff balance: $6004
  — monthly payoff amount: $476 ($301 above +$175 current pay).
  — time needed to payoff: 13.2 months (see calculation)
  
  After 13 months, your current loan balance will look like this:
  
  

  	Balance	Payment	Rate
  Loan1	$0	$0	12.5%
  Loan2	$0	$0	12.5%
  Loan3	$0	$0	12.5%
  Loan4	$0	$0	8.00%
  Loan5	$6079	$453	6.75%

  
  apply the same payoff proceeds to payoff your last loan:
  
  — your payoff balance: $6079
  — monthly payoff amount: $929 ($476 above +$453 current pay).
  — time needed to payoff: 6.9 months (see calculation)
  
  
  
• Summary:
  by grouping low-balance loans together and budgeting an additional $162 for debt payoff, you were able to eliminate this debt within 3 years. That is two years less than allowing these loans to run the full term.
  
  The magic of grouping is that it eliminates low balance loans quickly so that you have the motivation and additional funds to pay down your next loans.
  
  You can achieve the similar payoff time if you allocated an additional $162 each month to pay down a consolidation loan. See example under Option 2.
  
  Grouping works best when you develop a spending plan that meets your budgeted allowance for living and debt payoff.
  
  See our topic on budget planning
  
  
  
• Lower your other living expenses:
  review our section on lowering your monthly bills in housing, transportation, living, recreation, and more.
  
  Click to view "lowering your bills"