Tips for Paying Off Debt in 2014
Sign up for our FREE Monthly Email Newsletter
In addition to keeping in the financial know, you may be interested in checking your credit score and report.
¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.
²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.
³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.
4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.
Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.
It takes discipline to make a household budget—and even more discipline to stick to it—so consider these five tips to help you turn 2014 into a debt-free year:
1. Take stock of your financial situation.
Before you start knocking out your debt , you’ll need to determine exactly how much money you owe and on which accounts you owe it. Make a list of all of the debt you owe on your credit cards and loans, as well as the interest rates that you’re paying. Don’t forget about old credit cards or retail cards that you no longer use but on which you still carry a balance.
To ensure that you’ve accounted for all of your debt, pull a copy of your credit report and carefully check each credit account. You can order one free credit report every 12 months from each of the three national credit reporting agencies at annualcreditreport.com.
As you look over your credit reports, consider your debt-to-income ratio. Experts agree that you can generally afford to pay between 28 percent and 36 percent of your gross income in debt service. This means that, ideally, if you add up all of your debt—including payments on your mortgage, student loans, auto loans, and credit cards—it should not exceed 36 percent of your gross monthly income.
2. Create a spending plan.
Start by writing down all of your weekly, monthly, and yearly expenses, and then prioritize them to see where you can cut back. Determine which items are “needs,” such as food and gasoline, and which can be classified as “wants,” such as new clothes and meals out at fancy restaurants.
Once you’ve shaved some expenses from your balance sheet, decide how much of your savings can be put towards paying off your debt. You may also choose to dig into annual bonuses, holiday bonuses, and tax refunds in order to pay off some of what you owe.
3. Pick a payment strategy that works for you.
Decide how you want to prioritize your debt and then list all of your accounts in the order that you’ll pay them off. You can prioritize them by the amount of the balance, the interest rate, or both.
If you decide to prioritize by interest rate, focus on paying down the debt on the account with the highest interest rate first. Remember, though, to continue to pay at least the minimum balance on all of your other accounts. Once your first account is paid off, take the money that you were spending on it and put it towards paying off the account with the next highest interest rate—and then move down your list of debt accordingly.
However, if you have a small debt on one account—even if it doesn’t boast the highest interest rate—consider paying it down quickly. This could help you gain momentum and provide you with funds that can be redirected to paying off your larger debts.
Remember: Paying off a credit card doesn’t mean you have to cancel it. Your credit utilization—or how much of your available credit you use—is one factor that helps determine your credit score. By leaving your credit cards open, you’ll keep your maximum available credit as high as possible. This could positively impact your credit score by keeping your ratio of debt to available credit low.
4. Negotiate interest rates with creditors.
Ask your creditors if you qualify for a lower interest rate, especially if you’ve consistently made on-time payments and have paid at least the minimum amount.
5. Regularly track your spending—and make adjustments as needed.
To stay on pace for getting out of debt in 2014, continue to monitor your spending every month and quarter, and fine-tune your spending and savings plans if necessary. If you make it a point to record all of your expenditures, it should help you keep track of how you’re using—or wasting—your money.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.