How to Prioritize Your Payments for the Fastest Debt Reduction
Monday, February 2, 2015, 6:00 AM | Leave Comment
Debt is one of the scariest situations many people face, and it becomes a problem often unexpectedly. Too often, people find themselves over their heads when it comes to the amount of debt they find ourselves in.
Here are a few tips for the fastest debt reduction so you can take control of your finances again:
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Don’t Wait
The first thing to do is to realize that you need to act now, as putting it off will only make your situation worse.
Many times, people feel overwhelmed with their debt and don’t make a plan to pay it off, or don’t know where to start.
Talk to a financial expert if needed to help guide you to financial freedom again. The longer you wait, the more debt you will have to worry about.
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Asses Your Finances
The second step is to assess your finances in order to make sure that your basic needs are met before you begin to tackle your debt.
Your first priorities are going to be food and shelter followed by your auto loan, as well as any utilities, tax or child support payments.
Be sure to take an honest assessment so you can meet goals and pay for the basics.
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Gather Documents
Gather all of your financial documents and create a budget while honestly considering needs versus.
Generally, the needs can stay, but the wants must go. It’s important to understand where the debt cam from, and where you can cut back on to the pay debts off.
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Balances And Interest Rates
You will then want to consider your balances and interest rates. Pay the minimum due for your accounts each month, striving to keep them current.
If you are able to pay more than the minimum, most financial experts recommend paying off the debt with the highest interest rate first, by allocating as much as you can afford each month until this debt is paid in full.
Then pay off the debt that charges the next highest interest rate, continuing until you are debt-free.
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Another Consideration
Other financial experts suggest that if the number of lenders you are indebted to feels overwhelming, consider paying off the debts with the lowest balances first.
While this won’t put you as far ahead, financially, it might be what you need to keep you motivated as you begin crossing lenders off your debt list.
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“Utilization Ratio”
If improving your credit score is your main focus, consider the “utilization ratio” and focus on first paying down the debt with the highest balance with respect to your credit limit, as a high ratio negatively affects your credit score.
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Credit Counseling
If you feel that your debt repayment is more than you can handle on your own, consider enlisting the aid of a credit counseling service, say the experts at D Thode & Associates. They can be invaluable in assisting with your payment plan, negotiating debt, and helping to avoid bankruptcy.
You can see that no debt repayment situation is the same and that there are several factors to consider, but the efforts will certainly pay off in the end.
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