iQuanti: Paying off your debt can seem overwhelming, and you may not know where to start. But with the right repayment strategy, you can more easily get rid of debt over time. Let's dive deeper into three common debt repayment strategies and how they can help you get out of debt, so that you can choose the right method for your financial needs.
1. Debt snowball method
With the debt snowball method, you'll pay off your debts from the smallest balance to the largest. To start, make a list of all your outstanding debt balances. Then, you'll make the minimum monthly payments on all your debts and designate as much as you can toward the debt with the lowest outstanding balance. Once you've paid that off, focus on repaying the debt with the next lowest balance. Continue the process until you've repaid all your debts.
The idea behind the debt snowball method is to help you gain momentum early in the debt repayment process by knocking out those small balances quickly. This can give you motivation to keep going and eventually eliminate all your debt.
2. Debt avalanche method
With the debt avalanche method, you'll create a list of your debts from the highest to the lowest interest rate. Then, make the extra payment on the debt with the highest interest rate each month, while making minimum payments on all other debts. Pay that off first, then move to the debt with the next highest interest rate. This strategy can save you more money than the debt snowball method, but keep in mind that you won't have the element of instant gratification like you may with debt snowball.
3. Debt consolidation method
The debt consolidation method involves applying for a debt consolidation loan and paying all those high-interest debt balances at once. Once that's done, your only monthly payment due will be the loan payment, which will ideally have a lower interest rate than your debts.
How to decide which repayment strategy is right for you
The right debt repayment strategy for you depends on your financial situation and personal preferences. If you're able to maintain regular payments without the instant gratification of bringing accounts down to zero early in the process, go with the debt avalanche method. Debt snowball may cost you more over time, but you'll see quick wins early in the process, which can make it an easier system to maintain. And debt consolidation is a great way to get multiple debts down to one payment per month with a lower interest rate. Whichever method you choose, make sure to stick to the strategy and be consistent with payments so you can gradually work your way out of debt.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.
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Original Source: 3 Common Debt Repayment Strategies and How They Work
