How To Get Rid of Debt
We are affected by overload of debt and not only the country, as individuals we also affected by the pile of individual debt. Everyone wish we can get rid of debt by adopting and following few practices & strategies, this short read is to deal with debt related issues and how to get rid of debt quickly and effectively.
Start a Debt Snowball
Imagine how a snowball form, a snowball begins as a tiny ball and become bigger over time and distance, similarly, a debt snowball is attacking your smallest debt first and go forward for the biggest debt.
To create a debt snowball, you list all your debts from smallest to biggest, then attack them in that order without considering the interest rate. You keep servicing the minimum commitments on all and focus on wipe of the smallest debt, throw all bulk and extra payment to settle the debt and go by the order. Then, you repeat the strategy with the second-smallest debt, and so on until you’ve squared all your debt.
The idea behind a debt snowball is that by starting off small, you’ll feel a sense of achievement sooner. A quick successful wipe off of your first debt will give you the momentum you need to keep going.
A main advantage of the debt snowball is that it doesn’t require you to apply for a new loan or credit card, disadvantage of the debt snowball method is that you might pay more interest since you aren’t lowering any of your interest rates, and you might not be paying off your higher interest debts until several months or years into your repayment plan.
Attack Your Debts by Interest Rate — Debt Avalanche
List your debts in order from highest interest rate to lowest, and attack them in that order. This strategy is called a debt avalanche. Put in as much extra cash as possible at the high-interest debt while making minimum monthly payments on the others.
This method will cost you the minimum in interest, you got to decide on what is the better option for you.
Top-up your low-interest loan to pay off the high-interest loan
We all familiar with transferring a balance to a card with a lower interest rate, it works for some and most of us fall into a bigger debt by using this method as the credit cards motivate you to spend.
Instead, if you have a car loan or a mortgage loan, refinancing the asset-backed loan will help you to obtain low-interest loans and you can pay off the high-interest rate credit cards and debt, it will free up your cash flow so you have more money to put toward your largest or high-interest debt each month.
Simply, you can combine refinancing your other debts with either of the two above methods to speed up the settlement of your credit cards and save money on credit card interest payments. You can obtain a new loan against an asset belongs to you since asset back loans are usually low in the interest rate.
Make sure your new loan interest rate is lower than your credit cards and high-interest loans, Also, be cautious of extending your loan term. While it might make your monthly payment smaller, it might cost you more in interest in the long run.
On the downside, you’re turning the unsecured loan into secured debt. If you are not focused enough to wipe off your debt, you might risk your asset to the lending institution as they have the rights to repossess and recover their dues.
Conclusion
There are many approaches open for getting rid of your debt, transferring a balance from a high-interest credit card to a lower interest card is one example, but obtaining more credit puts you at risk of suffering more debt.
Either of these options can save you money and help you get out of debt faster provided you’re highly organized and disciplined. Debt snowballing and debt avalanche might look expensive in the short run, but it will give you real relief in the long run since both methods are to eliminate and wipe off your debt without accumulating more debt.
