Almost every adult in this world has taken a loan at some point in their life. Sometimes, things don’t work out well, and we end up in a debt trap. If you’re also struggling to manage your debts, you’re not alone. Fortunately, there are ways to pay off your debts fast and improve your finances.
The debt snowball method teaches you to pay off the smallest debts first until you can pay off the largest ones. First, write down your current debts based on balance and start repaying the smallest one by paying more than the minimum. Remember that you still need to pay the minimum on all other debts.
Repeat this strategy until you’re left with your most significant debt. Then, as you constantly pay your balance, you’ll notice that you have been freeing up more cash for other loans. It’s pretty encouraging to see your progress and debts vanishing away.
The debt avalanche method is similar to the debt snowball method. However, it orders your existing debts by interest rate. You can list your loans from the highest to the lowest in terms of interest rate.
Once you are done with your list, you can now prioritize repaying the debts with the highest interest rate first. Like the debt snowball method, you still have to pay the minimum payments on all other debts.
The debt avalanche method helps cut back on what you’re paying in interest, which frees up more funds in your account to repay other loans and make room for your wants and needs.
If you have multiple debts and are struggling with managing different repayments and schedules, it would be best to consider debt consolidation. You can use a new balance-transfer credit card or a personal loan for debt consolidation.
When it comes to debt consolidation, the lender will pay off all your existing loans and then transform them into a new loan consisting of a single payment. It makes sense if you can land a debt consolidation loan with a lower interest rate than your current debts. Debt consolidation can also help you avoid missed or late payments since you only have to make a single payment.
To know if this strategy is for you, you’ll have to compute your blended interest rate. This calculation is the combined interest rate paid on all your loans. It allows you to decide if getting a debt consolidation loan will help pay off your debt faster.
Debt Management Plan
You can set up a debt management plan with your debtors by asking nonprofit credit counseling agencies for help.
Your chosen agency will be responsible for negotiating concessions on your behalf with your debtors. It means they will talk and agree on setting up lower monthly payments and arranging a repayment plan that will fit your financial status.
Tips For Paying Your Debts
Below are several tips you may want to consider when it comes to paying all of your debts:
Get a Handle on Your Debt
Knowing how much debt you have is vital in taking control of them. It will also help you determine if you can take on more loans. Here’s how you can get a handle on your debts:
Check your credit reports.
Keep track of your debt accounts.
Make sure you know all of the accounts reflected in your credit report.
Pay Your Bills On-Time
Your payment history is a massive part of your credit score. The more you make on-time payments, the more it will be better for your credit score. It also means that missed or late payments would negatively affect your overall credit standing.
It will also help if you set up auto pay. Doing so can help avoid missed or late payments since your bank will automatically deduct the required minimum repayment for your debts and other bills. However, when setting up autopay, you must ensure your account has enough cash to cover your monthly expenses.
Limit Your Outstanding Balances
Your credit utilization ratio also affects your credit score. This ratio is the total revolving credit you’re currently using divided by what’s left of it. Keeping it as low as possible helps improve your credit score. It can be done by paying your credit card balances in full on time monthly.
To Wrap It Up
Getting out of debt is quite challenging. It requires discipline, which involves keeping up with your monthly bills. Fortunately, there are tips and tricks to make it easier. After deciding what debt management strategy applies to you, it would pay to follow the extra tips we shared to improve your current financial situation.