Debt

Four Effective Steps for Paying Off Your Debt

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As much as paying off your debts requires self-control and determination, it also requires a number of strategies in place. These strategies make it easier for you to tackle your debt situation easily and quickly.

You can apply these strategies to manage your personal, as well as business finances. However, for the latter, alternative finance firms across the country are readily available helping small businesses attain financial sustainability.

But when it comes to personal finances, you either need to learn to manage it by yourself or seek some expert advice. No matter what strategy you decide to go with, it is important for you to also directly address the issues that got you into debt in the first place.

In this article, we have mentioned four steps that will help you in paying off your debts.

1: First Get on a Budget

The first thing you need to do is developing a budget plan and ensuring that you strictly follow it every month. We recommend strictly following a budget plan is because it will stop you from getting into more debt in future.

It becomes difficult to get out of debts if you keep adding more debts to your existing debt situation. With a proper budget plan you get a hold on your expenses. Once you know what your monthly budget or expenses are, any extra money can be put towards clearing your debts. This way, you begin to get out of your debt situation easily and quickly.

Key Pointers:

  • A budget plan will help you get access of any extra money to put towards your debt.
  • It helps you from slipping away into more debt situation each month.
  • Gives you complete control over your expenses and allows you set your spending priorities.

2: Set Up a Debt Payment Plan

Before you start setting up the debt payment plan, you will have to write down the total amount you owe, the interest rate and the minimum payment you have to make for each debt.

Next, you will have to list your debts according to an order you want to pay them off. One way of doing this, is by listing your debts from the highest interest rate to the lowest. Another way is by listing smallest debts first to the largest.

Debt calculators come as a handy tool helping you access how quickly you can pay down your debts by increasing the payments you make towards it each month. The more you contribute towards paying off your debts, the more quickly you are able to pay it off.

Key Pointers:

  • Focus your extra money on a single debt will allow you to pay it off more quickly.
  • Raise extra money by either working an extra job.
  • Make ‘paying off your debts’ your priority.

3: Lower the Interest Rates

When you lower the interest rates on your debt, the payments you make towards it go directly to the principle amount rather than the interest amount.

Consider either one of the two options given below:

One, transfer your credit card balances onto the one that offers a temporary zero per cent interest rate. It will save you a good amount of fortune over a year, as long as you are considerate about paying off your debts.

Another is, taking a consolidation loan. We do not recommend you to cash out your home equity to do this. But if you take a consolidation loan, seek for one that offers a lower interest rate compared to the one you are currently paying.

Once you choose either of the two options described above, you will have to immediately stop using your credit cards so you do not add more debts to the already existing ones.

Key Pointers:

  • Ask your bank for a lower interest rate on your credit cards. There are some banks who willingly consider lowering the interest rates.
  • While moving balances between credit cards ensure that you look for the lowest transfer fees available at that moment and also try to pay off the cards as quickly as possible.
  • Read the terms and conditions before signing a consolidation loan, since the interest rates might change.

4: Credit Counselling & Debt Settlement Services

If paying off your debts is pressurising and difficult for you, you may want to consider credit counselling or debt settlement services. These services get mentioned in your credit report and should be your last considerations before bankruptcy.

The only caution you need to take is the company you choose to deal with. This is because, there have been many cases where the companies closed overnight and have taken their clients money with them.

Another thing you need to know is that settling your debts will affect your taxes. You will be required to pay taxes on the amount that is forgiven.

Key Pointers:

  • Debt settlements have proven to be a good option in case you are way behind in making payments towards your debts.
  • Credit counselling might also help you with putting up a budget plan and working out on a payment plan.
  • Do as much research as you possibly can before considering dealing with the companies. There are few legitimate companies, but there are many others who end up taking your money and not helping you at all in return.