Chances are that you have several credit cards and maybe even two to three loans. This means that you are carrying over four to five debts. Every month your income gets eaten by debt which doesn’t seem to go away. The reason none of your debts are getting over is because you are not focusing on one. When you start focusing on one or two debts, you can push to paying it off quickly. You can do it by putting in your bonus cheque and negotiating a better interest rate. However, until you focus on one or two debts, you won’t be able to completely pay it off.
It all comes down to prioritising your debt. There are two ways to go about prioritising your debt – look at the debt itself and your own financial situation.
Some debt will demand immediate attention.
– High Interest Rates
The longer your debt last, the more you will have to pay. A high interest rate will eventually push your debt to double the amount of what you originally borrowed. Find out the interest rates of all your debt and arrange them with the highest one first. The faster you knock off the debt at the top of the list, the better for you. It will require a lot of patience on your side, since the high interest rate one is probably your biggest debt.
– Lowest Balance
Rather than focusing on interest rates, you aim the debt with the lowest balance. Create a list of debt balances you have to pay and arrange them with the lowest one on top. This way you focus on the debt which can be paid of quickly. Unlike taking the high interest rate option, victory comes quicker when you focus on paying off your lower debt balance. It is important that you keep moving down the list and keep up the momentum.
Your Financial Situation
This part is especially if you are having financial trouble. Then, automatically paying off any debt won’t be a priority. Your priority will be keeping a roof over your head, paying the bills, and buying the grocery. In such a case, you need to focus on your needs. Ask yourself how many things are under debt?
– Pay off the House Loan: Have you bought the house using a loan? How many times have you used the house as collateral? Loans which involve your house should be a priority if you want a roof to live under.
– Take Care of the Car Debt: If the car is important to you because of your professional needs, then you need to be extra careful. Since a car isn’t a necessity, often creditors find it easy to repose it.
These are kinds of debts you can’t forget about.
Penalties, Warnings and Notices
If you have got warning, notices or penalties from the creditor agency, then automatically that debt get top priority. You need to deal with it before a collection agency steps in or it becomes a legal hassle.
This article, at best, gives you an idea on which debts to you can start focusing on. However, a debt consultant will do a better job at helping you. He will understand your financial situation and where your debts stand before advising the debt you need to focus on.