You can get into debt for various reasons like borrowing money for an expensive renovation, unexpected medical emergency, or because you needed to make a major purchase. However, when you find yourself in a situation when your debt is a threat to your financial security, then getting out of debt becomes a priority. In this article, we have selected the top debt repayment methods that you can use to pay off your debts.
Debt Avalanche Method
Before you choose your debt repayment strategy, it’s important to make a budget, if you don’t have one already. You can’t make the right decisions for your financial situation if you didn’t take the time to familiarize yourself with it.
So, make sure to create a budget that works for you, along with realistic financial goals that you plan to achieve after a certain period of time. In your budget also make sure to add the specific dates and times associated with your bills and monthly payments of your debts.
This leads us to the debt avalanche method. After you’ve made a list of all of your debts, then you need to order them by the interest rate. More specifically, your list will start with the debt with the highest interest rate, and it will end with the debt with the lowest interest rate. If you want to learn more about this method, then you can get a detailed explanation about debt avalanche from bestpersonalloans.com.
But, in a nutshell, you will need to make minimum payments on your debts, and then you will use the remaining money towards the loan with the highest interest rate. Also, if you have a large amount of debt, this method is useful to minimize the amount of time required to pay off your debt.
Debt Snowball Method
This is a popular method developed by financial expert Dave Ramsey. This is a great choice if you need to build up the motivation to get out of debt and live a debt-free life. It also involves a list of your debts, but here the lists start with the smallest debt, and it ends with the largest, regardless of the interest rate.
Then you make minimum payments on all debts, except the smallest. Next, you make payments towards the smallest debt, but you pay as much as possible. After you’ve successfully paid off the smaller debts, you will move to the bigger ones.
One of the benefits of this method is that you will instantly see progress, and thus you will feel motivated to stick to your plan. A lot of people claimed that they managed to pay off their debt in a few months using this method.
It’s important to pick a method that suits your personal requirements and financial situation. But, if you are struggling to make a choice, then you can use a combination of both of these methods. For example, you can tackle credit card debt first then move on to bigger debts like student loans, for instance.
This a good option if you have multiple loans and debts across different credit cards, it might be more convenient to consolidate your debt. Another benefit is that you could get a lower interest rate. This also can help you save more money and time while you’re repaying off your debt. But make sure to do your own research before you make a choice and if possible, talk to a financial advisor.