For many people, debts can turn out to be a serious liability, however, with appropriate strategies, it is not impossible to manage your finances better and in this case pay off debts efficiently. So, whether it is credit cards, student loans or any other type of debt, there are many ways to deal with it and eventually get rid of it in the process. Reducing debts does not only cut down on the liabilities one has, but also brings relief and gives one more time to concentrate on things like long- term saving and investment. Here are some of the most effective ways to pull yourself from debt that you can utilize.
Debt Snowball Method
The debt snowball method elicits such feelings because it involves small group of people who may require such quick wins so as to keep them going with this method. In this approach, you make payments to the debts from the smallest to the largest irrespective of the high interest rates. Here’s how it works:
Write down all your debts beginning with the smallest.
Consider paying all your debts minimums with the exception of the smallest one.
As much as possible, dedicate every additional dollar you get to the smallest debt until it is settled completely.
Once the smallest account is cleared off, turn to the next on the list following the same approach.
This method works in a psychological way because you are able to quickly clear small debts and it serves as an incentive to the person’s adherence to the strategy.
Debt Avalanche Method
In contrast to the debt snowball method, where emotion rather than logic takes the lead, the debt avalanche method aims to minimize the cost of debt, in order of the most expensive first. This strategy requires you to:
Rank all your debts starting from the highest interest rate to the lowest.
Make the minimum payments on all your debts, and any amount above the minimum payment goes towards the debt with the highest interest rate.
After paying off the debt with the highest interest, proceed to the next highest.
As much as this method may take a longer up to explain psychology benefits of the snowball method, it is better especially in the long run as you are reducing the amount of expensive interest much sooner.
Balance Transfer Credit Cards
If your debt predominates on the credit card repayments using balance transfer credit card can help you reduce and eliminate your debt in a short time period. Many credit card companies usually run certain promotions where you can consolidate your balances to a new card with a zero percent APR for one year to one and a half years.
An interest free period means that you can sit back and concentrate on the repayment of the principal balance without incurring more interest. If a balance is due to be settled after the expiry of the promotional period, it is wise to do it as much as one can due to the fact that the rate will apply after the offer runs out.
Debt Consolidation
If you have a large number of debts, debt consolidation would be very helpful for such groups of people. Debt consolidation is the operation of putting all your debts together so that you get out of the trap with the use of a loan with a lesser rate of interest where this can make it easy to pay less money than usual. There are a variety of debt consolidation types:
Personal loans.. In case you have other high interest debts, you may consider borrowing personal loans and using them to repay the expensive credit card debts.
Home equity loans – When a person owns a house, he or she can use this option to pay back the debt using a home equity loan or line of credit, but be wary of this method as you risk losing your house as it serves as collateral for the issue.
Debt consolidation works when the new loan is at a cheaper rate than what the debts being consolidated are and that there is no tendency of accruing new debts as one is repaying the consolidation loan.
Negotiating Lower Interest Rates
Another great method is to lower the interest rates on your present debts if you can talk to the lenders. You can call your several credit card companies or lender and ask for a lower interest rate. Present your story and your good payment situation. This does not have to be a substantial percentage because over time it will translate into thousands of dollars in your pocket.
Take Advantage of Automatic Payments
One of the most convenient means of ensuring that you stay on the course for clearing your debts will be through moving deadlines forward for each of the payments. Have your bank accounts automatically draw to your debt accounts so that you never forget to pay off a particular bill. This also help you skip late payments which will preserve your good credit score rating.
Apply Windfalls towards Your Debt
If and when you have any surplus cash noting the windfall nature of such funds, focus on minimizing and putting that extra cash on your debts. These can be used to pay off in the best way possible particularly if combined with some of the methods that are outlined as debt-liquidating methods, either snowballing or in the avalanche way.
Conclusion
Getting out of debt is a process and it requires commitment, strategy and patience. Especially if you know how to choose the way of debt payment that works for you and your finances the most. Finally, whether the debt snowball method or the debt avalanche method is your preferred form of debt reduction, the important thing is regularity and self-control. With focus and determination, not only you will be able to get rid of that debt burden but also create an effective base for more able future.
