5 Steps to Spring Clean Your Debt

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Every year many of us spring clean our homes, hauling the junk out of our closets and only keeping things we really need. It's a good time to reflect on the things we own, what works well for us and what we want to keep.

This spring, do some financial spring cleaning on your debt and give it a good overhaul.

  1. Take stock: Write down your current accounts, interest rates, balances and monthly payments. If you can, find your balances from the previous month and note if you're increasing or decreasing your debt and by how much.
  2. Do a stress test: Look at your debt payments relative to your monthly take-home pay. If you're paying over 36% to debt payments (including car leases and rent in the debt payments) you're probably over the amount that's healthy for you. A debt-to-income ratio calculator can help you perform these calculations.
  3. Run debt-free scenarios: Once you're in debt it can feel like you'll never get out and, as a result, sometimes you just give up trying. But the secret with debt is that it's usually possible to pay off credit card debts in as few as 3-4 years by just continuing to pay what you do today and not charging more. And if you take that money you used to pay to credit cards and put it to the mortgage, you can pay that off in 10-15 years. Sometimes you can save over $50K in interest. Sites like SavvyMoney.com offer free calculators that can help you understand how quickly you can get out of debt and will give you a payoff schedule to show you how it can be done.
  4. Lower your APRs: How are the APRs on your credit cards? If there's a big difference across your cards, this may indicate that some of your cards have rates that are too high. You may be able to negotiate lower rates with your lenders or you may want to look at new cards. With mortgage rates at historic lows, you should look at refinancing options as well.
  5. Create a debt plan: Even if you don't want to create a detailed plan, set a goal of getting out of debt. The Military.com Debt Boot Camp can help get you started.

With a little bit of work, you can haul that debt load into the sun, give it a good airing out and get yourself started on a better path.

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