In this guide, we’ll help you get out of debt by breaking down the best ways to pay off loans and credit cards, step by step.
Start by digging deep into your debt to understand where you are.
Before you can start paying off your loans and credit cards, it’s important to understand the details of each loan or credit card. According to AG Morgan, the first step is to know how much you owe, what interest rate it carries, when payments are due and whether there are any penalties for late payments or if there is any extra money being charged for paying early.
Make the minimum amount of payments for each loan or credit card.
Make sure you can afford the minimum payments on each loan or credit card. If you’re struggling to make your monthly minimums, it’s time to re-evaluate your finances and see if there are ways for you to increase your income or cut back on expenses.
Making additional payments beyond what is required will help reduce interest charges and shorten the overall length of your debt repayment period. However, keep in mind that paying more than the minimum amount due doesn’t guarantee that all of your debts will be paid off faster; some lenders may charge late fees if payments aren’t made by their due date (and those late fees can add up). Therefore, when prioritizing which loans/credits cards should receive larger sums each month–or even whether or not they should be paid off at all–it’s important also consider factors like:
- How much am I being charged in interest?
- How much could I save by paying off this particular loan instead?
Prioritize the loans or credit cards with the highest interest rates first.
When you are prioritizing your loans and credit cards, the most important thing to keep in mind is that the debt with the highest interest rate should be paid off first. This will save you money in the long run, since you will pay less interest over time. If you have two loans with similar rates of interest but different balances, choose to pay off whichever one has a higher balance first, as this will help reduce your overall debt faster.
Pay more than the minimum balance due each month.
To determine how much to pay extra, multiply the minimum payment by 2 and add that number to your monthly payment. For example, if the minimum balance due on your credit card is $100 and you have a balance of $500, multiply 100 by 2 (200) and then add this amount ($200) to your regular monthly payment. This will result in an overall increase of about 20%.
Use savings to pay down debt.
If you’re using savings to pay down debt and it’s not a emergency fund, make sure to leave enough money in the account to cover an unexpected expense. If there is no room for error, consider keeping an emergency fund separate from your debt payment plan.
You should also avoid borrowing from friends or family members as this can strain relationships and cause hard feelings later on if/when repayment is not made on time.
There are many different ways to pay off debt, but the most important thing is to start today. Don’t put it off and hope that things will get better on their own! Use these tips as a starting point for your own plan and then adjust accordingly based on your financial situation.