Effectively managing your debt is one of the best and most proactive ways of ensuring a sustainable financial future. It is deeply gratifying knowing that you’re doing something right when you see your debt shrinking!
The journey of exploring the best ways to manage your debt can improve your attitude and enthusiasm towards settling it. Instead of seeing it as a burden to your financial goals, you’ll recognise that it’s an inspiring investment towards your financial freedom.
Here are three often-cited ways to repay your debt.
The snowball method is frequently thought of as the best debt-relief option as it means you start off by paying the smallest debt and then move on to bigger loan amounts. This technique can be valuable for boosting morale and improving your sense of achievement as you start to see the results early on. Your debtor statements are reduced and you will be encouraged to continue with this debt repayment plan.
However, this means you end up paying higher interest costs, because it considers the payment of the debt and not the interest rates around it. To get around this, you can find other ways to refinance your high interest debts.
This strategy is the opposite of the snowball method. You start off with the biggest debt and finish with the smallest. If you’re looking to save on interest this is the best strategy to employ.
This strategy requires patience as it doesn’t offer immediate results but, in the long term, you can be debt-free quicker. You need to have the resolve to settle bigger debts. From there you’ll be more motivated because only the small obstacles will be left.
Through debt consolidation you can easily keep up with multiple payment deadlines by combining all your debts into one. This involves taking out one large loan, equal to the amount of your entire debt, and paying off what you owe in one place.
The obvious risk is that you would now be using debt… to get out of debt. However, you will end up owing one creditor instead of many, and could potentially secure a more beneficial interest rate overall. When followed effectively this method can help reduce your debt whilst improving your credit score.
All three of these strategies can be useful for reducing your debt. Discipline is required with all of them because having the best strategy is not enough – you have to follow through with it too.
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