Choosing The Best Debt Repayment Strategy
Paying off debt is not as easy as just making automated payments. It’s important to have a strategy for how you’ll pay off your debt. Pick a strategy for your debt repayment that helps you stay on track and pay off all your debts and come out on top of your debt situation. In this article, we’ll share some debt repayment strategies and give you information on each so you can fully understand each and decide which is the best option for you! Remember planning ahead always works, and when you have a plan, you’re more likely to stay on track.
The Debt Snowball
Dave Ramsey, a popular financial expert, has encouraged people to take up the “debt snowball” method. This debt repayment method constitutes arranging all your debts from the lowest to highest. For example, if you have four lines of debt each with $4000, $2000, $6000, and $3000 you can make a list starting with the $2000 and ending with the $6000. This method constitutes paying the lowest debt first and ascending in that order. You would still need to maintain regular payments on your other lines of credit but this method makes it easier to clear your debts individually.
Once you finish paying off your smallest debt, you can redirect all your money towards the next debt and go in that order until you’ve eliminated all your debt. When using this method, the second debt is “snowballs”. This means the money you pay on the next payment is increased due to the redirected money you were paying on the debt you’ve already paid off. It’s a great way to help you come out of debt fast but it needs determination and focus. If you select this option, all your payments snowball until you’re eventually out of debt completely.
The Debt Avalanche
With the debt avalanche, instead of listing your debt in the order of how much you owe you list them in order of interest rate. So you take into account all your debts and list them with the highest interest rates on the top of the list. The essence of the debt avalanche is to avoid hefty amounts in interest rates. So unlike the debt snowball, you take out all your high-interest loans first and avoid paying a lot of money in interest. The amounts you owe may be listed randomly from this standpoint.
The debt avalanche has a bigger picture, high-interest debts are usually the most difficult to get rid of as the money you have to pay back increases every month. After you’re left with low-interest debts which do not increase much in payment and the overall amount you would have spent on paying your debts would have reduced drastically as compared to the snowball method.
If you’re struggling to keep up with multiple streams of credit then debt consolidation might just be what you need. With debt consolidation, all your debts are combined into one low-interest payment debt. This is usually made possible either by taking out a personal loan to pay off all your debts or using a debt consolidation agency. Debt consolidation agencies try to negotiate your payments with creditors and get you the best deals on the market. If you’re looking to get out of debt fast, debt consolidation is the best way to do so. The best part about debt consolidation is you no longer have to worry about keeping up with several streams of debt, it’s all handled.
The benefits of debt consolidation are limitless and it is imperative to understand what debt consolidation is before deciding to opt for it too!