Prioritizing Your Debts: Creating a Repayment Strategy
If you are struggling to get out of debt, it may be because you don’t have the right strategy for repaying it. The first step that you need to take is to acknowledge that not all debts are created equal. Doing so allows you to make your monthly payments strategically, which may help you pay down debt while reducing the amount of interest paid to creditors.
Where Should You Start When Creating Your Strategy?
When creating a repayment strategy, it is important to decide whether you want to save money or pay off balances. If you prefer to pay off balances, it may be best to start with the smallest one and get rid of it as soon as possible regardless of the interest rate. If you prefer to save money on interest charges, you should start with the balances that have the highest interest rate regardless of how much is owed.
Look Into Debt Consolidation
Debt consolidation can be a great way to reduce the interest that is paid on your debt. Generally, you can consolidate credit card debts through balance transfers or through personal loans. Personal loans may also help you consolidate payday or other short term loans at a lower interest rate. Taking this step alone could save hundreds or thousands of dollars per year, which may make it easier to pay down your principal balance.
Talk to Creditors About Waiving Fees
If you miss a payment, you could be charged a fee of $25 or more in addition to paying a penalty interest rate. At a minimum, talking to your creditors may result in the fees being waived or the penalty rate being reduced. Telling your creditors that you are thinking about filing for bankruptcy may convince them to forgive some or all of your remaining balance.
Where Can You Get Extra Money From?
There are a variety of sources that you can get extra money from to help pay down your balances faster. For instance, you may be able to ask your employer for a loan or an advance on your next paycheck. It may also be possible to sell assets, lease a room in your house or find a roommate to split household bills with. Getting a second job or asking for more hours at work may also help you make extra payments on your debt each month.
What Happens If You Miss Your Goal?
If you can’t make an extra payment in a given month, you should at least make the minimum payment and try again next month. By making at least the minimum payment, you keep your credit score and history intact for another 30 days. In the meantime, make an effort to review your budget to find where you may have gone wrong in missing your debt reduction target. From there, you can make adjustments that decrease the odds of missing your goal in future months.
Paying down your debt in a timely manner can improve you physical and mental health as well as you fiscal health. This is because you will experience less stress and the harm that it can cause. Therefore, make it a point to develop a debt repayment strategy either on your own or with the help of a financial adviser.