MONEY TIP 1: Pay debt first

by: AX

Ever looked at where all your last paycheque went? If you are the average working-class person with 2 or more credit cards and are just paying off the minimum payment on your card, chances are your payments are just going towards interest charges without touching or barely paying off your principal balance.

Consumer loans

Before you even think of tucking away money for the future in a saving's account, make an effort to pay off ALL your high-interest consumer loans. Banks may pay 2-3% in interest for savings accounts, but most credit cards could charge anywhere from 8%-30% in interest. So if you tuck away $100 in a 3% savings account, you will make $3 in a span of one year.

However, if you pay off an 18% credit card with that same $100, you would have saved yourself $18 in interest in that same span of 1 year. That's a difference of $15! It may sound small, but if you had $10,000 owing on that card and you had the cash on hand and the choice to either tuck it away in the saving's account or pay off the bill, that's easily a $1,500 difference in savings between paying of debt and tucking the money away.

The same thing applies to mortgages and lines of credit. If you have extra cash on hand, consider paying down the principals and save big-time on interest charges.

Consolidation loans

Are you drowning in debt? Stop tiring yourself on that never-ending treadmill of trying to make enough money to service your debt. If your interest rates are especially high, consider getting a consolidation loan.

Most banks are willing to consolidate all your debt into one loan where you could make a regular payment to which will carry a lower interest rate than all the other debt you have. Make sure though that you don't 'charge-up' your credit cards you had the bank just pay off. Most banks, however, conditionally approve the consolidation loans to the other credit card accounts' closure. Even if they don't require you to close out the credit cards, this writer strongly recommends that you do so to remove the temptation of getting into even more debt.

Paying down that principal!

The best way to lower the interest payments, and in turn to lower your overall debt, whether or not you have been able to consolidate your loans to a lower interest rate is to pay that principal down. Make more than the minimum payment regularly, and watch your principal, and your interest payments go down. If you pay down your principal faster, the faster you will achieve freedom from debt.