Tuesday, September 29, 2009

Power Pay Your Debt

Find yourself drowning in debt? Want to get rid of your debts or to cut them down? Try power paying your debt.

Power paying is a great technique to help you pay off your debts and to save money on interest costs. How does it work?

Let’s start by assuming there are 4 debts you are working on and that you’re paying a total of $400 a month toward these debts. In the meantime, you are incurring no additional debt. . Now try to find an extra amount, $50 for example, to put toward the debt with the highest interest rate so that your total debt payment will be $450. Continue making your regular payment toward each of the other debts. As each debt is paid off, you will continue paying the same total amount of $450. Put whatever you were paying for the debt you just paid off toward the remaining debt with the next highest interest rate. As each debt is paid off, the next debt will be paid off at a faster and faster rate until all debts are paid and you are debt free. In this example, we started with the highest interest rate debt and added an extra amount toward total debt payment. Other options are to start with the debt with the lowest balance or the shortest term. Either of these options could help you to eliminate at least one of your debts sooner, which can be a psychological advantage. The biggest financial advantage, however, is to start with the highest interest rate debt. To learn more or to create your own plan online, go to https://powerpay.org/, a program sponsored by Utah State University Extension. You will be required to establish a user id and password. The program will tell you how many months earlier you will be debt free and how much interest you will save by power paying. In addition, there are many other features on this site including how to set up a spending plan, Power Save, and other personal finance topics.

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