Prioritising your debt repayments can help you to get clear of debt faster.
Being in debt is stressful and difficult, especially if you have multiple debts to deal with. If you’re trying to reduce the debt that you have then you need to have a repayment plan. Often the most effective debt repayment plans are the ones that help you to clear debts in the right order. These are a few key factors to consider when you’re deciding which debts to pay off first.
Clear the debts with the highest interest rate first
The debts with the highest interest rates are costing you more. The longer you have these debts, the higher the total overall level of interest to pay will be. So, according to personal finance experts Solution Loans, you can save yourself money in the long run by clearing your most expensive debts first. By doing this you may also be able to get debt free more quickly because the money that you have will go further with less overall debt and interest to pay.
Pay off debts that have charges attached
Credit cards with a fee or overdrafts that come with monthly charges are costing you more than just the basic debt and interest. These are the debts to focus on once you’ve cleared the debts with the highest interest rates, as they will also slow down your overall repayment as a result of the charges.
Focus on any debts that you’re having problems with
If you have a credit card that you have made some late payments on, or a personal loan with a missed repayment, then these debts could be important to clear. Equally, if there are debts adding risk to your finance situation such as guarantor loans – even if they are being paid by someone else – clear these as soon as possible. If you don’t want mistakes with debt repayment to mark your credit file in the long term then you need to get back into good habits with the debts that you have. So, if you’ve got a poor recent record with some of your debts, focus your attentions on ensuring that those debts are repaid properly so that any damage done to your credit score doesn’t get worse.
Clear debts to unlicensed lenders as soon as you can
If you have borrowed from an unlicensed lender or a loan shark then you should try to clear these debts quickly. Unlicensed lenders can add interest and charges that cause what you owe to spiral in a way that a regulated lender cannot do. Plus, with an unlicensed lender or loan shark, if you have an issue with the lender you can’t simply make a complaint about them or ask for more time to pay. It’s important to prioritise paying back these debts as soon as possible to avoid any escalation.
Pay off debts in a way that motivates you
Once you’ve taken the above into account, it may be a case of focusing on which debts are the most motivational to clear. You might find it more satisfying to work on repaying a chunk of the biggest debt, for example. Or you could be more motivated by paying off any smaller debts first. Work out what is going to make it easier to stay motivated and create a priorities schedule based on that.