To pay off debt, you need to understand what kind of debt you have like mortgage debt, credit card debt, or student debt. Once you do this, you can create a debt repayment plan for paying it off. Given below are 8 tips to help you be debt-free.
Pay Off Multiple Loans Using These 8 Tips
Collect All Data
To know how much debt you have:
- Collect all the information you can on your different loans.
- Keep your credit card statements handy when you try to determine what your total debt is.
- Find out if there are errors in your credit report so that the loan amount is accurate.
Get your credit score to see if you are eligible for a preferential rate of interest. This will help you lower the interest rate on your loan and get a longer repayment term.
Start With A Budget:
Every loan payoff exercise starts with a budget. If you don’t have a budget, you spend beyond your capacity and fall into a debt trap. This helps you identify the expenses you need to cut down on.
You can either take professional help or use free online tools or excel to determine your monthly cash flows. Your cash flows are the difference between your income and expenditure. When your expenses are greater than your income, you have a negative cash flow.
Sometimes, a small loan can be a big help. If there are small dues, you can use small interest-free loans to pay them off so that they don’t balloon into larger loans.
Begin With The Most Expensive Debt
List down your loans in descending order, so that will help you repay your debts on a priority basis. This is where debt consolidation loans bad credit comes into play. Your most expensive debt could be a small loan with a high rate of interest.
Debt consolidation is all about repackaging your loans into cheaper loan agreements. If multiple small loans are attracting high rates of interest, you could negotiate with the lender for fresh loan terms with lower rates of interest to bring down your debt.
If you have a large loan with a high-interest rate, you should pay this loan off first. Once the expensive loan is paid off, your monthly interest payout will come down.
Paying The Minimum Balance Is Not Enough
When it comes to credit card debt, you have the option of paying a minimum balance every month. What this does is that it builds up your debt, and the vicious cycle continues. The minimum is 2 to 3% of the outstanding loan, and this delays your debt repayment schedule.
Try to repay these loans by paying a higher amount than what you pay as the minimum monthly balance. If it is possible, then start making weekly payments instead of monthly payments. When you pay more than the minimum balance, then your overall debt comes down, and you can pay it off faster.
Build Up An Emergency Fund
You need to go in for a loan in the first place because you don’t have an emergency fund. You don’t know when emergencies will arise, so start putting aside a certain amount every month into an account that will pay for emergencies. If you do use the funds from this account, then replenish the amount so that you don’t need to take a loan.
As a rule of thumb, you could keep around three to six months of your monthly expenses as an emergency fund. Whenever you have some surplus, keep adding to your emergency fund so that you can avoid excessive debt.
Let Your Bonus Work For You
You might want to spend your bonus on something that you enjoy. There is nothing more rewarding than paying off your debt and being free. So for the moment, postpone that long-deserved expensive vacation and instead use your bonus to pay off your debt in part or full.
Factor in your bonus as part of your debt repayment plan. With lower or no debt, you can focus on increasing savings and building your wealth. The rate of interest on your loans is far higher than what you earn through your investments, so it makes sense to clear your debt.
Have A Bill Payment Calendar
You can use conventional techniques or use your mobile device for creating a bill payment calendar. You need to feed in the due dates of all your credit card bills in this calendar to avoid any delays in payments. Schedule your salary dates with the bill payment dates so that there are no cash flow problems.
The bill payment calendar will have your monthly and yearly expense commitments. When you pay your bills on time, then you don’t build up debt. You keep track of your expenses and avoid paying high rates of interest charged by credit cards.
Use A Balance Transfer Card
When you have a large amount of high-interest debt, you can switch to a balance transfer card. These are zero-interest cards that allow you to transfer debt from multiple high-interest loans. What you need to keep in mind is that the loan must be paid off during the introductory interest-free period that could range from six to 18 months.
There is a fee to transfer the balance, and if you fail to pay off the loan during the interest-free period, you could incur a heavy penalty. So if you have a windfall and want to reduce your debt, then go for a balance transfer.
Manage Multiple Loans Easily
There are lots of options available for managing multiple loans. You need to start by estimating how much you owe and to whom. Start by paying off the most expensive debt to help reduce your loan burden the fastest. Shift your loan to a balance transfer account or negotiate with your lender for repackaging your loan at cheaper rates.
Avoid debt if you can with discipline, and if you can’t, there are ways to keep your interest rates down to manageable levels. Spend smart and stay debt-free.