Top Ways to Pay off Your Debts

Paying off your debts can be a daunting task and, depending how much debt you have, different possibilities will exist. For example, if you have smaller debts, you may be able to clear them more quickly than if you have a few larger debts. In addition, different debt solutions are often suitable for different debt troubles and predicaments. Luckily however, there are many different ways in which  to approach the problems and struggles that debt brings.

Before deciding how to approach your debt, there are certain initial steps you may wish to take. 

Know How Much You Owe

Make a list of all your debt to see how much debt you actually owe in total. At this step you should be as detailed as possible, taking note of the debt name or account, the type of debt that it is, what the balance is, what the interest rate is, what the payment term is and the monthly minimum payment.

What is the Maximum you Can Afford To Pay Each Month?

Consider your budget carefully, taking into account your monthly income as well as your existing outgoing expenses. Think about how much you will need to pay in order to cover your essential spending (i.e. rent or mortgage, utilities, insurance and food). Also look at your non-essential spending and see if there are any luxuries you do with cutting out or cutting down on. Have a look at how much you currently put towards paying off your debt and see whether you could increase this contribution.

Hugo Anglesford, of online loans connection service Doddler.co.uk adds: “When it comes to debts and repaying your debts, it may sound obvious, but one of the best ways to not find yourself in debt is to avoid it in the first place. It is good practice to go about your day to day and even month to month life, using a budgeting process to ensure you can afford everything you spend money on. Even if you have money in your bank account, it is wise to be on top of what what you are spending and your outgoings. That way, should something untoward happen, you can deal with it in a more managed way.”

What Strategy or Strategies Could You Use To Pay Off Debts?

Generally speaking, there is no wrong’ or ‘right’ way in which to pay off your debts. Ultimately, different ways of dealing with debts will likely apply in different circumstances and for different people. For example, if you have a secured loan in the UK that you are struggling to make the repayments for, you may assess the debt differently to if you have for example a credit card bill you need to pay. Furthermore, the debt repayment, consolidation or management route you ultimately choose to employ for your needs will also be influenced by your credit history at least to some extent. 

If for example you have a bad credit history with a history and record of not repaying lenders on time, you are more likely to struggle when it comes to finding a loan or solution involving loans, financing or refinancing. You may in such cases have to look towards things like debt consolidation, debt management plans and other similar processes.

What is the Debt Snowball Method?

The debt snowball method involves eliminating the smallest debt as fast as possible and paying the minimum on all your other existing debts. Any extra money that you have, you put towards paying the next largest debt until you work through them all. 

The benefit of the snowball method is that you can quickly pay off certain debts which can make people feel good about themselves. Even if you have only paid off a small balance, it makes you feel confidence to see that some of your debts are disappearing. This acts as a psychological motivator and encourages you to continue paying off debt. 

What is the Debt Avalanche Method?

When you choose the debt avalanche method, this involves paying the largest debt or the one with the highest interest rate as fast as possible and paying the minimum amount on all other debts. After you have done this, you then pay any extra towards the next smallest debt.

People often opt for the debt avalanche method because it helps them feel in control of their debt. Once they have their largest debt out of the way, they only have small amounts of debt to focus on which pale in comparison. It also helps them get rid of a large amount of interest which can save them money in the long run.

Debt Consolidation Explained

With debt consolidation, an individual takes all of their debt to combine it into one single account. They then work to pay off their collective debt in monthly instalments and avoid any other debt until they have fully repaid the existing debt.

Debt consolidation makes it easier to manage your debt and helps people to budget in the long-term as they know exactly how much the single payment will be each month. Borrowers could also benefit from lower interest rates if they choose to consolidate their debt. Many find that having just one account increases their focus.