You’ve thought about paying off your debt for a while, and now you’re finally ready to starting putting those plans into action. It can be difficult to decide where to begin, and how you should begin paying it off. The following tips can help you reduce debt faster and more efficiently, and can also help you figure out a debt elimination plan that is best for you:
If you have a lot of credit card debt and you’re paying a high interest rate, you might want to start the elimination process by transferring balances. This plan will only work if you are able to qualify for a new credit card with a zero-percent introductory offer, or at the very least, a low interest rate. The last thing you may want to do when you’re trying to get rid of your credit card debt is apply for a new credit card, but consider the benefits. If you do qualify for a credit card with a lower APR, transfer your balance from your higher interest credit card onto the new credit card. If your new credit card’s limit isn’t high enough, you may not be able to transfer your entire balance, but transfer what you can. Because of the lower interest, the payments you make will go more towards your principal and you’ll notice that you’ll make progress faster.
Consolidate your debt
One way you may be able to consolidate your debt is by transferring balances, as mentioned above. If the new credit card you receive has a credit limit that is high enough to support all of the smaller balances on your older credit cards, you may be able to transfer them all to your new credit card. Instead of having multiple credit card payments, you can have just one monthly credit card payment by doing this. Alternatively, you may be able to work with a debt consolidation company that can help you combine all your debts into one large loan. You may also want to consider taking out a personal loan and combining all your debts, including credit card debt. If you’re hoping to eliminate debt quickly, though, you’ll want to make sure you’re still paying the same amount of money you were paying before when you had multiple minimum payments to make. If you only make the minimum required payment on your new loan, it can still take a long time to pay off. But if you use all the money you were paying across your multiple loans, and put it towards your new consolidated loan, you can start making a larger dent in your balance.
Start with the highest interest
If you have multiple debts and consolidating your debts isn’t an option, or just one you’d prefer to skip, one common debt reduction strategy is to begin with the debt that has the highest interest. Because this is the debt that is costing you the most money, you may want to get rid of it as soon as possible. This might be your largest debt and as a result, may take the longest to pay off, but consider the benefits: once it’s paid off, you won’t be paying that high interest rate anymore, and you’ll save money.
Start with the smallest balance
Another option is to begin with your smallest balance first and work your up from there until the last debt you pay off is the largest one. This is a popular debt elimination method because it helps keep consumers motivated. The smaller debts are easier to pay off and don’t take as long, and that gratification and sense of financial freedom can make you want to keep going. Your highest interest debt might not be the smallest balance debt, so it’s often a choice between those two. Of course, if you do happen to have a debt that has both these qualities (for example, a high-APR store credit card with a pretty low balance) then pay off that one first.
Do you need money to eliminate debt? If you’re receiving long-term payments from an annuity or structured settlement, Peachtree may be able to help. Contact us today to learn more about selling some or all of your future payments for a lump sum of cash.
Nothing above is meant to provide financial, legal, or tax advice. You should meet with appropriate professionals for such services.