If the big 3-0 is looming in your near future you're going to have to get hustling to pay down your debt before you reach the milestone marker of a birthday. You could just declare bankruptcy and be relatively debt free.There are some exceptions such as student loans and back child support. But if you'd rather do it without killing off your credit scores, it's going to take some work. How much depends on how much debt and how many years you've got left.
Keep It Simple
Subtract your age from 30. This is the number of years you have to pay down the debt. If you're 23 now, then you have seven years. If you're 28, you better get moving you've only got two years.
List the debts on a spreadsheet or piece of paper. Include the monthly minimum payment, the total amount of the debt and the interest rate. Don't forget your student loans, car loans, outstanding medical bills and the killer credit cards. You have two choices. List the debts in the order of the total amount of debt starting with the smallest total first. Or list the debts with the highest interest rate first.
Determine whether to pay off the smallest debts first to give yourself a sense of accomplishment or the debts with the highest interest rates first. You'll end up paying out less money if you pop for the highest interest rates.
Divide the total amount of debt by the number of years you have before you turn 30. That amount is roughly what you'll have to pay each year. It's rough because it doesn't include the interest that will be due on those loans but it will be reasonably close because you'll be paying off pretty big chunks every month so the interest will start to decrease. Check out debt repayment apps online to get an exact figure.
Take a deep breath. Sit down. Divide the yearly total by 12. That's what you have to pay each month over and above the minimum payments. For example, if you have four years to pay down the debt and your total debt is $34,000 -- your auto loan has $12,000 left, your credit cards total $8,000 and your student loan is $14,000 -- then your yearly figure will be $6,000 and the monthly debt payment is $500. Add in any prepayment penalties if applicable. You'll find them on the loan documents.
Make minimum payments on all your debts with the exception of the first debt you're paying off. Send that creditor the $500. Continue making the $500 payment and minimum monthly payments until the first debt is paid off. Send the second creditor the $500 payment and minimum monthly payments to all the others.
Sit down with your significant other and hash out how you're going to come up with that monthly payment. It could be you sell assets, get a second job, ask for a raise or cut expenses to the bone.
You're a Glutton for Punishment
List the debt on a spreadsheet.
Call each debtor and ask the debtor how much you would have to pay per month to have the debt paid off in the number of years you have left before your 30th birthday. You could calculate it yourself but it gets complicated depending on whether the interest is simple or compound and whether, in the case of credit cards, the interest starts accruing on the day of purchase or you have a grace period.
Enter the monthly payment on your spreadsheet for each debt. Add up the monthly payments. This is the amount you'll either have to cut expenses or increase your income
- Keep a running total of your debts as a bar graph. Watching them slide down every month will keep your motivation high.
- Don't think that the extra payments will get you ahead and if push comes to shove you can skip a couple of payments. After all your creditors should realize you've paid ahead. It doesn't work that way. If you miss a payment, the creditors will tack on late charges and report that missed payment to the creditor bureaus.
Katie Jensen's first book was published in 2000. Since then she has written additional books as well as screenplays, website content and e-books. Rosehill holds a Master of Business Administration from Arizona State University. Her articles specialize in business and personal finance. Her passion includes cooking, eating and writing about food.