Paying off your debt is something every responsible adult has to deal with at some point in their life. Debt isn’t something inherently bad. In fact, there’s such a thing as a healthy amount of debt. However, when you start to get a little overwhelmed at paying them or if they’re already taking a huge chunk of your income, then you need to finish paying off some of those debts as soon as you can. If you find yourself in a similar situation, here are some tips you can use to help you take some of those debts off your shoulder in a timely manner.
Tip #1: Know What You Owe
That sounds simple enough, but some people do have a hard time keeping track of what they owe. For that reason, you need to get a clear picture of all your debts and loans and list each and every one of them. You should also write down how much each debt is and the minimum repayment amount if any. This includes loan repayments, credit cards, unpaid bills, and even fines that you owe. Add them all up to see just how much you owe in total.
Tip #2: Prioritise Your Debts
It’s not exactly wise to try to tackle all your debts at once. While it’s possible to do it, it may cause more harm than good, not just to your wallet but also to your mental health. It’s better to look at everything you owe and start prioritising those debts that you need to pay immediately and those that can wait just a bit longer. Priority debts include your rent or mortgage repayments, council rates and strata. Your utility bills are also considered a priority, including water, gas, electricity, plus your car repayments. Everything else should come after the ones you’ve identified first.
Tip #3: Utilise the Snowball and Avalanche Method
One proven way of paying off debt quickly is the snowball method. This strategy involves listing your debts from the smallest amount to the largest, excluding, of course, your priority debts. Those always come first.
In your list, you should devote extra money each month to paying off the smallest debt first, while making only minimum monthly payments on all your other debts. That’s how the snowball strategy works. In time, you’ll be able to pay off the small ones, giving you more money to put in those with higher amounts. As an alternative, the avalanche method of repayment works the other way around, where you pay off the debts with the highest interest rates first. Both strategies have their pros and cons, so try to examine which one is more suitable for you.
Tip #4: Work Out What You Can Afford to Pay
Establishing a budget is the easiest way to work out just how much you can afford to pay off your debt. You can do this by listing all of the money you earn from your income sources on one side and all of the money going out on the other, including all your necessary expenses. Next, tally all the items from both sides of the list and compare those going in against the money coming out. This is the part where you try to cut or reduce some of your expenses so you can reallocate some funds to debt repayment.
Paying off debt isn’t always easy and can sometimes take a while to eradicate completely. However, by following these tips, you’ll be able to pay off most of your debts without you realising it.
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