13
May
2011

In financially challenging times, increasing your cash flow can improve your monetary situation significantly. While extra sources of income can be a great way to increase your cash flow, prioritizing your debts is another effective yet overlooked solution.  There are certain types of debts which, if eliminated quickly, can boost your finances. You might not feel the difference immediately, but things would definitely improve in the long run.  Here are some debts which you should focus on to increase your cash flow.

Most people have some typical long term debt like car loan, student loan and mortgage loan. Among them, car loan should be your priority. This type of loans can be quite a burden due to high interest rate. Moreover, many lenders have particular insurance requirements, which push up the monthly costs.

When your car loan debt is gone, attack your student debt. While federal student loans have a modest interest rate, private loans are highly expensive. If you have borrowed from a private lender to fund your studies, it’s high time for you to take student debt seriously. Don’t wait to pay off your student debt as per schedule, and try to eliminate it as soon as possible. You should note that you can allot more money towards your student debt because you no longer have to make payments towards car loan debt.

Mortgage debt comes next. Many people are not willing to clear their mortgage debt because of low interest rate. They take mortgage as an investment. However, these people overlook the fact that mortgage is the biggest debt for most people. Eliminating mortgage early can increase your cash flow considerably, and you can also save thousands of dollars on interest (since mortgage is a long term loan).

However, you should remember that paying off your debts early should not come at the cost of retirement savings. You should aim to strike a balance between eliminating debt and saving for the future. You can consider using tax refunds, cutting down on cable TV packages, doing away with your land phone etc. to pay off your debt.

Waterfall approach to debt free ™

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