Many people are confused by the idea of reducing their debt by saving money. It's easier than you think though, and makes complete sense when you understand the concept.
By saving money on your everyday fixed or variable expenses, you have more that can be contributed towards paying off your outstanding debts. And the faster you pay these debts, the more money you save in interest accumulation.
Let's say for instance, that you have credit card debts of $10,000. And let's also say - for the sake of example only - that you're paying 10% interest on that debt, and your minimum monthly payments are $250.
Note that these figures will not be fully accurate, because we're creating an example only.
Now, if you paid zero interest on that credit card debt, you'd have it completely paid off in 40 months. That is three years and three months. Seems forever already, doesn't it?
But since your debt is accumulating interest over that entire time, it is likely to DOUBLE while you're paying it off. In other words: What would take a little over 3 years to pay off without any interest charges, could now take 6 years or more. And you'll end up paying $20,000 or more before it's all said and done.
If however, you're able to save money in your budget each month, you can contribute more money towards paying that debt off faster. So let's say you're able to pay $350 every month instead of the base $250. Doing this means your reducing the amount of interest charged to you each month, thus you're reducing the overall amount of money being paid to this debt account.
A zero interest debt could be paid off in as little as 28 months - a little over 2 years - instead of the original 3.3 years. Since all debts have interest rates of course, you'll still be paying more in the end. But you'll be able to pay that debt off faster - and at much less cost - by paying more than the minimums.
So find ways to get additional money out of your budget today, and start reducing those outstanding debts faster!
© 2006, Kathy Burns-Millyard. More About Reducing Debt: For a free guide to managing, reducing and eliminating your worst debts, please visit Find-Debt-Help.com. |
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