Prioritize Debt Payments
For many people overwhelmed with the debts they have accumulated through the years, it can be difficult to decide which ones they should pay first. From credit cards to loans, debt indeed is a major source of stress. And the more stress it gives to a person who earns a meager income.
The use of credit cards has been proven to be a major cause of debt. In the U.S., for instance, of the 90 million households that own a credit card, the average debt they have accumulated amounts to more than $10,600 based on data provided by CardTrak.com. It might also help open your eyes that people who belong to this category actually pay just the minimum amount due every month. If this situation continues assuming that you’re one of those with the more than $10,600 debt, did you know that it can take you 33 years to fully pay off your balances? That’s right, 33 years.
So just imagine if you’re in your 30s now, you will still be paying that minimum amount until you reach the age of 60 or even your retirement age. This situation is not very ideal as you won’t be able to manage your debts well by following this route. There are other ways you can solve your problem.
Start acting now towards your goal of reducing and eliminating debt in your life. For those who own more than one credit card and who have outstanding loans of various types from student loans, payday loans and auto loans, your focus should be on paying a single debt.
Experts in the field of managing personal finances suggest directing your attention to the debt that involves the highest interest rate whether it’s a cash advance or payday loan or a credit card. This is the one that gives you the most debt so make this your first priority. What you need to do is to focus on this and if you can, pay more than the minimum amount required to save money in interest for the long term.
This is not to say, though, that you won’t continue paying the others. You will have to keep paying the minimum amount of your other debts or credit cards. Remember that the regularity of paying your monthly minimum amount due affects your credit rating. So avoid late payments if possible to maintain a favorable credit score.
Another method you can apply is by focusing on paying the debt with the lowest balance. Assuming you have an outstanding payday loan and this has the lowest balance among your outstanding debts, then you can focus on paying off this balance and then eventually go up the ladder gradually paying the others that involve higher amounts.
Again, what’s important here is you make a clear cut list of your debts according to the strategy that you want to follow. If you opt for the first method, then list your debts according to the interest rate from highest to lowest. If you’d like to use the second technique, then list your debts according to the total balance from lowest to highest.