Your debt has been weighing you down for a long time now. You need to stop carrying this burden on your shoulders and shrug it off for good, but you’re not sure how to start. How can you possibly whittle down your outstanding debts? These are some strategies that can help you.
Follow a Budget
The first thing that you should do is build yourself a personal budget. A budget is an essential financial tool that can help you organize your income and expenses for the month, preventing you from spending beyond your means.
How can you get started on a budget? Download one of the best budgeting apps on your smartphone, computer or tablet. Follow the instructions and build your budget from scratch.
Lower Your Bills
Lowering your bills will give you fewer payments to cover on a month-to-month basis, which should reduce your outstanding debt load. It will also help you collect more savings to put toward your debt repayments. These are just some ways that you can lower your bills:
- Call your internet, phone and cable providers to see whether you can negotiate your rates. They could give you better deals.
- Call your credit card issuer to see whether you can lower your annual percentage rate. This could make your monthly bills lower and make your outstanding balances grow at a slower pace.
- If you’re repaying student loans, and you’re struggling to keep up, you might be able to change your repayment plan. For example, a Pay as You Earn Repayment Plan (PAYE) might be a better option for you.
Follow a Debt Repayment Strategy
There are two debt repayment strategies that you should know about: the avalanche method and the snowball method. The avalanche method is a more aggressive repayment strategy, while the snowball method is a slow and steady option. Choose whichever option suits your personality better and then incorporate it into your monthly budget.
What’s the difference between the two strategies?
- The Avalanche Strategy: Tackle the loan with the highest interest rate first, all while covering the minimum payments for your other loans. Picking the loan with the highest rate means that you’re paying down the debt that grows the fastest. Once you’ve finished that loan, you can move on to the option that has the second highest interest rate — and so on and so forth.
- The Snowball Strategy: Tackle the smallest loan that you have. You’re focusing on the balance of the loan instead of the interest rate. The goal of this strategy is that you can pay down a small balance faster and get that burden off your shoulders. Once you’re done that repayment, you can move on to the second smallest balance — and so on and so forth.
One Important Tip for Debt Repayments
As aggressive as you want to be with debt repayments, don’t put all of your extra savings toward this goal. You’ll still want to keep some savings for other purposes, like building an emergency fund. When you focus too much on debt repayments, you could put yourself in a financially vulnerable spot and, consequently, put yourself into more debt.
For instance, if you don’t have any savings left over, you won’t be able to tackle an urgent expense. You might have to borrow funds to pay it off. You could use your credit card, or you could apply for an online loan. One of the benefits of applying for an online loan is timing. You can fill out the application shortly — it can take less than ten minutes — and the service provider can process your application quickly afterward. You don’t have to wait long to find out whether you’re approved or not.
Using a credit card or online loan can get you out of an emergency when you don’t have enough savings, but it will come at a cost. You’ll be adding to your outstanding debts and giving yourself more to pay down. So, don’t put all of your savings toward your repayments. Keep some just in case.
Use a Balance Transfer Card
Do you have a lot of credit card debt? With a balance transfer card, you can move the balance from another credit card account onto this new account. A balance transfer card offers users an introductory period where their balance is charged 0% interest. This can make debt repayments much easier to manage.
Your debts don’t have to weigh you down forever. Follow these tips and lighten the load this year.
