To manage debt of any amount, can feel intimidating, however paying it off is all about planning. Fortunately, multiple debt repayment options are available for a person to pick from, as well as the right choice for every style that is out there. With the use of the right kind of tools, a valid strategy, and perseverance, one can get their debt under control.
To get started on planning
Looking at one’s current budget or expenses is always considered a good place to begin. Moving with, one would be able to determine where they can cut back on extra costs along with contributing more money toward the repayment plan. This method can also give one a good idea of how much a person can afford to put toward their debts each month. While going over the budget, make sure that one can afford to cover at least the monthly minimums on all of the debts before picking a repayment plan that requires a person to pay more toward any particular debt.
Once that’s completed, be wise to pick the most suitable debt repayment option for the budget, time frame, and personality. Each comes with its perks, so any one of them will help a person reach their ultimate goal — being debt-free — in a smarter way.
The Unbeatable Repayment Plan: Debt Avalanche
The Basics: With an approach such as debt avalanche, one’s goal will be to prioritize the debts that follow the highest interest rates. To do that, one would be required to start by taking stock of all the different debts in one spreadsheet or list and placing them in order from their highest interest rate to the lowest. The debt with the highest rate will be the debt that a person works on paying down first. Once this is done, one would move on to the debt with the second-highest interest rate, and further down the list until one gets every debt completely paid off.
The Advantages: Paying off the high-interest debts foremost will be likely to save you the most money over the long haul.
The Invincible Repayment Plan: Debt Snowball
The Basics: Besides the debt avalanche approach, a debt snowball repayment plan can essentially prioritize a person’s debts initiating with the smallest amounts. As one would work with the debt avalanche strategy, you’ll start by organizing your debts, but this time you’ll be listing them in order from the smallest amount to the highest, regardless of interest rate. As you pay off each small debt, you move on to the larger ones, working your way up to the most expensive ones.
The Advantages: If one appreciates crossing things off on their to-do list quickly, a debt snowball approach to debt repayment allows a person to pay off smaller debts swiftly before moving on to the larger, time-consuming, and expensive ones. For some, small victories along the way motivate them to get to the finish line.
The Excellent Repayment Plan: Refinancing
The Basics: Refinancing means replacing an existing debt with a new one, and in some cases, it can be quite beneficial. Start by researching their interest rates, then see whether any loans offer better terms. One has to ensure and understand the terms of their current debts since some come with penalties for paying them off more quickly than the term limits. Moreover, to double-check on how much time a person has left on their current debts. Refinancing onto a lower-interest loan for a longer period might not save them any money if they’re close to repaying the original one.
The Advantages: Refinancing high-interest loans to a loan with a lower interest rate can save you significant money over the life of the loan.
