If you’re one of millions that has a constant battle deciding how to pay off multiple debts, then this is the article for you. The problem is that many of us do not do the maths and look at their unique situation logically.
You need to be sensible and work the figures if you want your dream of being debt-free to become a reality.
And for those that do not earn enough to pay off all debts each month, there becomes the need to prioritise debt repayments. And this is where so many make mistakes, and end up costing themselves even more money. You must do the maths so that you pay the least amount of interest possible.
The first common mistake is that many people will pay off cards proportionally to how much is on each card. This is probably the wrong idea. What you must concentrate on is the interest rates for each card. If one interest rate is higher, then that is what you need to concentrate on paying off. Calculate what you will save by paying off weighted amounts on each card.
Linked to this is the desire, for a psychological boost, to pay off the cards with the lowest amounts on as it allows you to clear a card easier. This may sound like good news, but again is a false economy if there is a card with higher interest rates not being paid off because of this. You should always prioritise according to what saves you the most interest charges.
If you have minimum repayments set up on multiple cards, this is something you should monitor at all times. It is easy to just pay off the minimum each month, and get on with your life. However, interest charges are often as much as the monthly payment, meaning your outstanding balance is not paid off at all and you are throwing away a lot of money each month simply to stand still. If you can ever pay off more than the minimum amount on a credit card, do so immediately.
Always plan your budgeting, including debts. Write down and record what you owe, what you can repay, and how much you can repay. Having it laid out in front of you makes it easier to plan accordingly and find cards where you should perhaps alter your payment plan. It could potentially save you many hundreds of pounds.