July 16, 2012
Tiffany Ching, Union Bank, N.A., Senior Vice President and Regional Manager
Eliminating debt is one of the fastest ways to free up money for savings, investments and other long-term financial goals. Credit card bills, student loans and other debt are not only a burden on a budget, but the balances almost always accumulate interest, adding to your debt.
For some, paying down debt may seem overwhelming, but by putting a plan in place, you may be able to pay off your debt sooner, with less interest, while possibly improving your credit score.
Following are some tips to help you pay down debt with the goal of saving more for the future:
Get a Handle on How Much You Owe
Start by listing the outstanding balance, interest rate, minimum payment and due date for each of your debt accounts. This information can easily be found on your most recent monthly statement. Keep a calendar to remind you of due dates, set up automatic payments where you have that option, and continue to make timely monthly payments on each account.
Pay with Cash
Avoid sinking deeper into debt by putting away the credit cards and paying with cash. Paying with cash provides greater awareness of how much you are spending and helps you determine if you are living within your means. Also, it is wise to establish an emergency fund so you won’t be tempted to use credit if your car breaks down or you have unexpected medical expenses.
Develop a Budget
Create a household budget that makes paying down debt a priority. Look closely at your spending habits and determine where you might be able to cut expenses and put that money toward your debt. Plan to set aside your tax return, monetary gifts or other windfalls to pay down debt.
Renegotiate with Your Creditors
Call your credit card company and ask for a lower interest rate. If you notice that mortgage rates have dropped two or more points lower than what you are paying, you might consider refinancing your home mortgage at a lower interest rate. If you have been paying your bills on time and have a favorable credit score, your creditors may be willing to work with you.
Pay More than the Minimum Due
Resist the temptation of paying only the minimum required each month. When you make only the minimum payment (usually 2 to 3 percent of the outstanding balance) you’re doing little more than paying finance charges. Paying the minimum amount extends the time it takes to repay the charges, compounding the amount of interest that you will end up paying over time. It may be wise to tackle high interest debt accounts first, paying the minimum balance on all other accounts and allocating extra cash to the debt with the highest interest rate. This will help you pay off your total debt faster, and you will pay less interest.
The foregoing article is intended to provide general information about paying down debt and is not considered financial advice from Union Bank. Please consult your financial or tax advisor.
Tiffany Ching is a senior vice president and regional manager for Union Bank, N.A. Union Bank, N.A., is a full-service commercial bank providing an array of financial services to individuals, small businesses, middle-market companies, and major corporations. The bank operates 407 branches in California, Washington, Oregon, Texas, New York and Illinois, as well as two international offices, on March 31, 2012. UnionBanCal Corporation is a wholly-owned subsidiary of The Bank of Tokyo-Mitsubishi UFJ, Ltd., which is a subsidiary of Mitsubishi UFJ Financial Group, Inc. Union Bank is a proud member of the Mitsubishi UFJ Financial Group (MUFG, NYSE:MTU), one of the world’s largest financial organizations. Visit www.unionbank.com for more information.
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