3 Best Strategies To Pay Off Multiple Debts
Think being 100% debt-free at a young age is still a myth? It may seem like this in Canada, where nearly 75% of the people have some type of debt. But if you are struggling with multiple debt accounts, you will be happy to learn that there are viable means to pay them off simultaneously.
The experts at Alpine Credits have come up with this article, demonstrating some of the most effective strategies to pay off multiple debts. In addition to this, you will also get to know certain tactics that would help you become debt-free faster, so read until the end.
Settling Multiple Debts: Identify What You Owe
It makes sense to list your debts and zero in on the amount you owe in the first place. For each item on the list, note the interest rate, the overall debt amount, and the monthly EMI you pay.
While calculating your debts, include your car loans, mortgages, line of credit, taxes due, payday loans, credit card loans, student loans, and unpaid utility bills, if any. Also, include the amounts for spouse or child support that you owe or loans taken from family members or friends. This will give you a realistic view of your overall debts.
Consider Your Budget: How Much Can You Repay Each Month?
We recommend you prepare a budget to ensure seamless money management. Here, you need to decide the amount you can comfortably spare each month for your repayments.
Therefore, consider the amount you earn, spend, and eventually save. Balance your regular expenses against your income, and keep your savings aside. If you’ve been overspending, this is a time to check your spending behaviour.
Ultimately, your repayment strategy would be based on the amount you can gear towards repayments. Therefore, you need to plan this out once you have listed your ongoing debts.
Also, do not overlook the repayment time frame. As long as you do not go beyond your financial capacity, it would be wise to pay off your debts as early as possible; too long a timeframe may have you lose your focus, eventually plunging you into a debt cycle again. Therefore, keep the repayment time frame realistic so that you don’t suffer the financial heat.
Paying Off Multiple Debts: How To Go About It?
Here are certain strategies that would help you clear multiple debts quickly:
1. Deciding The Debts You Should Pay Off First
Some loan repayments are more urgent than others. So, you need to decide which loans to clear off first. Typically, experts recommend attacking loans with high interest rates. If you manage to pay these off quickly, you can save on the interest.
Start by paying the minimal amount possible for all other debts, excluding the one with the highest interest rate. Your priority should be clearing off the principal amount quickly for this debt. For instance, credit card loans and payday loans are the most expensive. Therefore, you should try and clear these off at the outset. This strategy is also referred to as the stacking method.
Next, target the loans with the lowest balance. On clearing multiple small loans, you can elevate your credit score. Also, pay off the amounts you have borrowed from your friends and family members.
2. Apply For A Debt Consolidation Loan
If you have been paying off multiple loans at high interest rates, getting a debt consolidation loan makes sense. However, make sure to consult a financial expert who will help you choose the right lender.
With this type of loan, you can combine several loans at high interest rates, making a single payment each month at a lower interest. This will help you simultaneously close several credit card dues, personal loans, education loans, and other debts.
This is the most effective strategy for selling multiple debts. You only need to make a single monthly payment. The interest rate would be lower than your credit card loans. You would be relieved of managing too many due dates each month.
However, a debt consolidation loan would work in your favour only under the following conditions:
- If you qualify for an interest rate lower than what you are currently paying. Poor credit scores might lead to higher interest rates.
- The monthly payment is lower than the aggregate of all the monthly EMIs you are paying now. This way, you can attack the principal amount with the savings and pay off the debt faster.
- Avoid landing up in more debt. Restrain yourself from overusing your credit card or making impulsive purchases.
3. Go For The Snowball Method
This is yet another method of paying off your debts, where you start paying off the amounts from small to big. Therefore, you need to first identify the smallest loans and clear them off. This is the opposite of the stacking method, where you pay the minimum amount needed for the bigger loans. Here, you attack the smaller ones first, suppose, your credit card loan.
This strategy hypothesizes that it would be relatively easier for you to settle the smaller loans. Once they are off the table, you would gain a sensation of accomplishment, which would motivate you to take on the larger debts.
Among all the methods to clear off multiple debts discussed above, availing of a debt consolidation loan is the most recommended. It relieves you from the arduous task of tracking multiple repayment dates every month. Also, you can boost your credit score significantly when you close down several debt accounts simultaneously.
It makes sense to consult a professional before choosing a lender. Often, unseen expenses like processing fees, transfer charges, and prepayment penalties burn a hole in your pocket. An adept expert can guide you in choosing the best creditor, ensuring that the rate of interest you shell out is lower than what you are presently paying.
3 Best Strategies To Pay Off Multiple Debts