It’s the one thing that most of us will experience at some point and will have to juggle as part of daily life, but paying your debts doesn’t have to be difficult. With many people identifying 2020 to be the year they reduce their debts and a reported 374 million open credit cards in the US as of the middle of last year, you can see why being in debt is being in the majority. So how can you reduce your personal or household debt easily?
Aim to Pay Your Smallest Debts First
A term you may have heard making the rounds is the ‘snowball’ method, paying off the smallest debts that you have, building up to your largest debt. The reason this is a good way to start is it will provide you with a method to pay off something quickly. You’ll be able to clear off one of your debts quicker, rather than having it hanging around. This can give you a boost subconsciously by starting small. You can clear more of your debts in a shorter space of time, reducing the number of lenders you have one by one. If you only focus on paying your largest debt first, it can seem like there is no end in sight, chipping away at one large amount that will take a while to settle.
From a financial point of view, it makes sense to clear smaller debts first because of the interest accruing. It’s better to have interest being paid on a smaller number of debts or just one, rather than many at once. This is especially true if any of your debts has a high rate of interest. If you let your smallest debt keep accumulating interest by concentrating on your largest debt, you could end up paying back more in total overall. Start from smallest to largest, and you can start winning small battles on your way to winning your war on debt.
Consolidate What You Have
If you have many different lenders, it can become a nightmare managing the monthly repayments for each. If you have this problem, you should look at consolidating what you owe into one payment. A debt consolidation loan is where you can borrow an amount to cover all of your current debt, even if you have poor credit. The idea with this is to reduce your monthly spending and have just one debt to focus on, paying one lender instead of many. This can be used for all types of debt, including credit cards, unsecured loans, store cards, and will provide a much more manageable solution.
If you choose this method, you can save yourself huge amounts on interest payments. However, some lenders may look to take advantage of the position you’re in by offering you the amount but with high-interest rates or a short repayment term. You should ensure you only use a trusted lender for debt consolidation. Otherwise, you could move your debt from bad to worse, even if it’s just one lender. The Better Business Bureau (BBB) has a list of lenders that are trusted, as well as ones they have had issues with.
This should be something you do regardless of the amount of debt you have, even if it is just a small amount. By saving regularly, you’ll be able to put aside some of your earnings to use at a later point. Whether that be to purchase something you need or to help clear your debts. The latter is especially important if you are in debt. If you get into the habit of saving, you can ensure not all of your disposable income goes to non-essential items.
It’s easy to forget how much money you have before payday if you’re not checking your balance regularly and keeping track of your outgoings. To help you do it, many banks have ways you can save regularly. Some have a feature that will automatically put away any available credit in your account on a date of your choosing. You can just set up a simple standing order into a savings account for a nominated amount each month as well. Either way, you should start to put aside something, as you can put this towards clearing your debts also.
Transfer Your Balance
If you can’t get a debt consolidation, or you only have one or a few debts, it’s worth looking at available balance transfers. If you have debt on a credit card and are currently paying interest on the amount, you should look to transfer this to a 0% card with a balance transfer. Doing this will depend on your credit rating, as some lenders will be wary of you transferring your debt to them.
However, there are many lenders available who can offer a 0% introductory period on a credit card that will allow you to focus on repaying the debt solely. You should seek out ones that you can clear most of the debt during the introductory offer, then all you have to do is balance transfer to another card after this. You may find that there aren’t as many of these deals available as there once was, due to financial regulations looking to put more responsibility back on lenders. But if you look in the right places, you may still be able to find one.