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Learn How to Pay Off Debt Fast and Get Back on Top
Feeling overwhelmed by mounting debt? You're not alone. It's a common struggle and it's easy to feel like you've tried everything.
But there are ways to take control and start managing your debt effectively.
Let's explore some simple steps to get you back on track.
Commitment is Key
The first step is the biggest: making a real, honest commitment to tackling the problem. It's not going to be easy, but it is possible. Recognise that you're in charge and you can change your financial situation.
Know Your Debts
List out all of your debts: credit cards, personal loans, store cards, everything. Note the balance, interest rate and minimum payment for each.
Seeing all your debts lined up, knowing exactly what you owe and having a clear plan for how you're going to tackle them is incredibly important.
It transforms a vague sense of dread into a concrete, manageable challenge.
Prioritise Debt Minimum Payments
As you tackle your debts, it is important to prioritise paying the minimum repayment to each of your debts (so that you don't impact your credit rating).
In addition, you get to choose one particular debt that you put any extra money towards to pay down first.
Which debt do you pick first?
Debt Repayment Strategies
There are three debt strategies you can use to help decide the order in which you will pay down your debts.
1. Smallest Balance First
Also known as the Snowball strategy, you pick the debt with the smallest balance first, regardless of interest rate.
If you have lots of small debts, the snowball method can be a game-changer. The quick wins as you pay down debts can be incredibly motivating and help build momentum.
2. Largest Interest Rate First
Also known as the Avalanche strategy, you focus on the debt with the highest interest rate first.
This can save you money in the long run as you are getting rid of your most expensive debts first.
3. Custom Sort Strategy
Sometimes, the most "emotional" debt is the one to tackle first.
If there's a particular debt that's causing you a lot of stress, getting rid of it can be a huge relief, even if it's not the mathematically "best" choice.
The trick is to test out the different strategies and see which works best for you. But remember, all debts should still get their minimum payment; the debt strategy is to help you decide which debt gets any extra money you have available.
Snowball the Minimum Repayments
No matter which strategy you choose, when you pay off your first debt, the minimum repayment becomes available for you to use elsewhere.
For example, if you have a credit card with a minimum monthly payment of $21 and you pay off the outstanding balance, you now have a spare $21 a month you can use.
Putting this money (or at least some of it) towards the next debt on your list can be a great way to boost paying down your debt.
Then, when you pay off the second debt, do the same thing again and keep repeating this until all the debts have been paid off.
Celebrate the Wins
Each time you pay down a debt, celebrate the win. That doesn't mean go out and spend hundreds of dollars and put yourself into more debt, but do pick something affordable you enjoy.
Taking time out to acknowledge the achievement will help keep you motivated as you work through your debts.
Track Those Big Debts
After some of the quick wins and small debts are paid off (like credit cards and store cards), you might come up against a personal loan or car loan.
These can take longer to pay off, and after the initial enthusiasm of seeing debts vanish, it can feel like things are getting bogged down.
Make sure you keep track each time you make a payment, so that you can see the debt balance dropping and the progress you are making.
Visually seeing that things are still moving forward can make the difference between sticking to your goal and giving up.
Ready to Take Control of Your Debts and Get Rid of Them for Good?
Try the MoneyFormula Five Steps to Success today and discover the easy way to manage your money and pay down debt fast!
MoneyFormula will give you all the tools you need to follow the steps in this article. Line up your debts and see exactly when you will pay each one off and when you will be debt free.
You can test the different debt strategies (snowball, avalanche and custom) and discover which one works best for you.
Then lock in your debt-free goal and make it happen. View your progress as you pay down debt and instantly see the impact of snowballing the minimum repayments (all or some) from one debt to the next.
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PLEASE NOTE: The information in this article is general in nature. It does not take into account your personal objectives, financial situation or needs. Please speak to a qualified financial adviser if you need specific advice on your finances.