It’s never easy to get out of debt, but it’s much more challenging when you don’t have much cash to put towards your liabilities.
What many people don’t know is that you can successfully pay off debt even without improving your income, but you will need to get smart about how you deal with money.
With this in mind, here are five top tips for paying off your debts – no matter how much you’ve been struggling.
1. Use the Snowball Method
The so-called ‘debt snowball is a method of paying off debt while keeping yourself motivated about improving your financial situation. In broad terms, the debt snowball method involves:
- Making the lowest payment on all of your accounts
- Paying as much extra money as you can afford towards the account with the lowest balance
- When the lowest debt is paid off, using all of the money you had been putting towards it to pay off your next biggest debt until all of them are paid off.
By following these steps, you can lower your credit utilization, and pay off smaller balances quickly – allowing you to focus on major debts. Since this approach focuses on the lowest debt totals first, you’ll also benefit from a number of ‘quick wins’ that can give you the motivation needed to continue on your financial journey.
An alternative to this is to start with the maximum interest debts first. This is in case you have any high-cost borrowings like short term loans, payday, or similar types of products. Pay these off first to avoid being charged high-interest rates.
2. Bring All Your Debts Together
It’s hard to stay on top of lots of different debt accounts, especially when all the payments fall at different times throughout the month.
To make things easier for yourself, why not unite all of your debts under a single banner. By taking out a debt consolidation loan, you could even make it cheaper to pay off what you owe. This is because some of these loans can even come with lower rates of interest than your existing finance, making it quicker and cheaper to settle your balance.
3. Build a Budget
Look for financial advice online and the top results are likely to extol the benefits of creating a budget. Budgets may not be the catch-all solution that they’re made out to be, they are the starting point for a better financial future – and you can’t hope to create a successful debt strategy without one.
The most important thing is to take account of all your income and outgoings. Even a few stray pounds here or there could topple your budget plans, and by seeing the bigger picture you’ll be in a better position to allocate funds towards eliminating your debts.
4. Pay On Time, Every Time
It might sound obvious, but paying your debts on time and in full can make it much easier to cope. This is because, for each late payment you make, you put yourself at risk of incurring charges and fees. These can seriously impede your chances of catching up with your debts, and could also damage your credit score.
5. Think Long Term
Regardless of how much debt you have, it’s important to think of these repayments as a marathon – not a sprint. While it can be tempting to repay as much as possible, making a plan is a much better way to go since overextending your finances to settle debts could leave you needing to take out further credit.
Paying Off Debt Without the Drama
By thinking long-term and following these steps, you could put yourself on the road to financial recovery.
Dealing with debt isn’t easy, but anyone can improve their situation through effective planning and dedication to the cause.
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