When you’re in debt, it’s as if it’s all you can think about. I’m here to teach you three common methods to pay off debt faster, as well as the ones I prefer and have employed with my own credit issues. Then it’s up to you to put it into practice and regain control of your finances.
Creditors love long-term debt. It means interest payments, and that’s where they make their money. So borrowers just paying off the minimum amount every month is great news. This is true however many letters they may send you telling you not to.
So, try and avoid this circle of debt. Only borrow money for items that are actually important to you.
If you can, avoid using credit cards to get through the end of the month if possible. You’ll need a plan in case an emergency arises and you’re unable to make those payments. Plan your finances and you find yourself in a better position immediately.
Make it a point to never pay just the minimum payment. You’ll be paying simply the interest charge and nothing else.
The Avalanche Method is a term used to describe when you wish to pay off the debt with the highest interest rate first. You follow this with any extra payments, after you’ve paid minimum payments on everything else.
If you have a mortgage with a 2% interest rate and a credit card debt with a 19% interest rate, you would attack the credit card debt with any spare cash first.
The reason for this is because the credit card debt will grow faster with interest (extra charges) over time than the other debt. You want to eliminate the possibility of those debts increasing, and this is one way to accomplish it.
If you envision it, this process is similar to how you would make a fantastic snowball for a play war. Start with a modest amount and gradually increase it until it reaches its maximum size. The snowball technique entails looking at all of your debts, making the minimum payments on all of them. Then you attack the smallest debt first with any additional payments until it is paid off.
After you’ve paid off that loan, you’ll go on to the next smallest, and so on. You would never cut the overall amount of money you spend on debt repayment unless you had no other option. This is because that money would be used to pay off other obligations. People like this strategy because it makes them feel proud and happy.
This concept is a cross between the standard snowball and avalanche debt-reduction strategies. The fireball method is so named because it can help you burn through expensive bad debt quickly. Hence, you can get back to doing the things that important to you. The steps are as follows:
• Organise all debt into two categories: “good” and “bad.” Debts with an interest rate of less than 7% are considered “good.”. Money you owe with an interest rate greater than 7% that do not have the potential to grow your net worth are classified as “bad” by this criteria.
Sort “bad” debts by their outstanding balances, from smallest to greatest.
Pay the bare minimum on all outstanding payments each month, then apply any remaining funds to the lowest of your “bad” loans.
After you’ve paid off that obligation, you’ll move on to the next smallest on the bad-debt list. Burn those balances until you’ve paid off all of your bad debt.
This is the most straightforward and perhaps painful method. The less you commit to outgoings, the more you can use to pay off debt.