Best Way to Pay Off Debt
People struggle to settle unpaid loans every day, so many look for the best way to pay off debt fast. Sadly, they mistakenly assume that there is a one-size-fits-all approach to break free from payments. Each person has a financial situation and means unique to them.
If you’re one of them, first know what debt is and the various ways to eliminate it such as debt consolidation. It’s important to match your situation with the appropriate method.
Pick the techniques that you can confidently stick to until your last debt payoff. These will all require hard work, determination, and discipline.
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What is Debt?
In order to pay off debt, you must first understand it. These are simply amounts of money you owe to someone else. There are exceptions such as ongoing bills, taxes, insurance, and mortgages though. Everything else considered as unpaid balances include:
- Personal loans
- Car loans
- Student loans
- Credit card balances
- Medical expenses
- Payday loans
- Home equity loans
- IRS and government debt
Of course, they cause you to worry as they grow larger due to monthly interest rates. They have required minimum payments, but paying the smallest amount won’t help cut interest down.
You may have felt distressed and exhausted as they just continued to grow despite your diligent minimum payments.
Debt Management Methods
When paying off your loans by yourself, you may employ two strategies: the snowball method and the avalanche method. The former involves paying off smaller debts first, while the latter starts with heftier ones.
Depending on your discipline and other means, one of them will prove better for your financial situation.
The snowball method focuses on paying the smallest unpaid loans first and settling increasingly larger ones until all payments are completed. You can start this by listing all your unpaid balances on a spreadsheet along with their corresponding minimum payments. Pay the smallest debt in full while only paying the minimum for the rest.
It seems arduous as you finish small payments and let others grow from interest. However, taking down smaller loans may motivate you further in becoming financially free. Little victories against unpaid balances feel empowering, so you may keep that momentum for larger debts.
On the other hand, the avalanche method pays off loans in decreasing order, starting with the largest. You pay off the one with the largest interest in full while paying other minimum monthly payments.
However, completing the largest payments means you won’t see much progress immediately. It can discourage some to continue their repayment plan.
Debt Reduction Strategies
Aside from these do-it-yourself strategies, there are other methods like consolidation, settlement, and counseling that are provided by certain companies.
This may involve taking out loans with smaller interest and professional advice. Keep in mind that their results may vary, and some may be fraudulent.
Consolidation involves borrowing a lump sum to pay all your debts in full, then repaying it with lower interest. This requires the assistance of a loan consolidation company that will discuss lower rates with your lenders.
If successful, this will enable you to pay your debt faster and easier. However, you may be offered the highest interest rates if you have poor credit.
This involves either balance transfer cards or home equity loans. The former requires transferring your loans in another card with a 0% introductory interest rate. This lasts for at least a year, so you may focus your money to pay the principal without interest.
A home equity loan involves borrowing money based on your mortgage payments and your house’s current market value. However, it puts your house as collateral, so make sure to diligently pay it back.
It’s best to check your options online and offline. Match your current financial situation with the available companies.
If you have a bad credit rating and simply can’t repay your loans, settlement may be the best option. Like consolidation, it involves the aid of a financial institution that will negotiate with your lenders. Instead of a lower interest, they will discuss reducing the amount you owe.
However, this also comes with prolonged risks, such as a lower credit rating. You may also become inundated with collection calls. This will help you repay your debts faster, and may improve your credit rating in the long run.
Again, it’s best to research all your options. Read about them thoroughly and inquire about all the necessary details. Find the best company that can help you. Some are best at settling credit card debt, even providing other reduction strategies.
Other companies may provide guidance in financial health and negotiate lower rates for you. Debt counseling companies will ask for financial details, then formulate a debt management plan accordingly. You will be obligated to follow the plan by making lower monthly payments and providing financial advice.
However, keep in mind that you will still pay the original amount, so you may take longer to pay it off. Lenders may also see you as a credit risk, so you may find it harder to take out more loans. In addition, you will have to close all your credit cards save for one that is designated for emergencies.
You may get out of these dues by yourself and with the help of other companies. On your own, you may use the debt snowball method or the avalanche method, systematically taking down unpaid balances. On the other hand, some companies may provide consolidation, settlement, or counseling, as they believe it is the best way to pay off debt fast.
Undoubtedly, the best money management method is having good money habits. Curb unnecessary payments and focus on essentials like food and utilities. If you can, find a second job for extra money.
These will help you save money for an emergency fund, so you can pay sudden expenses without loans. Discipline is always key in escaping and staying out of debt.