Organize The Debts And Begin Paying Them

There are several strategies you can use to organize the debts and begin your repayment. Here are the three most effective strategies for organizing and repaying debts

  1. You can arrange all the debts with the ones charging high-interest rates top on the list, and downwards (closing the list with the one charging lowest interest rate).

You first identify the debt that is attracting the highest interest rate and then channel all your repayments towards clearing it. Once fully paid, you then use the installment which was going to it, add it to the installment going to the second debt with the second highest interest rate. Once fully paid, you then use the installments which were going to the first and second debts towards payment of installments for the third loan, and this goes on until you clear up all the loans.

The beauty of utilizing this strategy is that it allows you to save more money. The mathematics behind this is that if you were to pay a debt attracting a higher interest rate for a longer duration of time, then you would end up paying more interest on that debt. Paying the same debt on a shorter duration attracts fewer interest payments.

  1. Arrange the debts in a descending manner (with those having highest balances top on the list, and the ones with lowest balances down the list).

With this approach, you identify the debt with the highest balance, and then channel all your repayments towards clearing it. Once fully paid off, you then use the installment which was going to it, add it to the installment going to the second debt with the second highest balance. Once fully paid, you then use the installments which were going to the first and second debts towards payment of installments for the third loan, and this goes on until you clear up all the loans.

This strategy is more useful if you have acquired some good amount of extra money that you wish to throw at the debts. Once you clear the loan with the highest balance, you’ll gain some confidence and momentum towards clearing the second one, the third one …and all the remaining ones.

  1. You can arrange the debts in ascending manner (with those having lowest balances top on the list, and the ones with highest balances closing the list).

Here, you will channel all your repayments towards clearing that debt with the lowest balance first. Once fully paid off, you then add the installment which was going towards it to the installment going to the second debt with the second lowest balance. Once also fully paid, you then use the installments which were going to the first and second debts towards payment of installments for the third loan, and this goes on until you clear up all the loans.

This strategy is equally vital if you are looking for motivation and momentum towards clearing the debts.

If any of your debts are being repaid through a check-off system via your employer, in most cases, you would not have the authority to stop any deduction going towards repayment of any loan and channel it towards paying another loan. What you can do in such a scenario is to utilize any extra money you have and throw it at any debt repayment strategy you’ve considered.

However, regardless of which debt-repaying strategy, you decide to utilize, the most important thing is persisting with it to the end. It won’t be easy, and that’s why you must persist to realize plausible results.

Other than using the extra money you have made to pay up the debts, you can also rely on any of the below sources of funds:

Four other sources of funds to help you pay debts

  • Do you have any savings? You can use part of your savings to help you offset part of the debts; especially those attracting high-interest rates. To many, this might seem like an uncomfortable route, but if you deeply analyze the results, you’ll end up saving more on interests the debts would have accrued, as compared to the minimal interests that today’s most savings accounts attract. However, you should always take necessary precaution never to deplete all your savings towards debt repayment.
  • Have you received some windfall? In case you’ve received some windfall (some good amount of money you didn’t expect), use it to offset part of, or even all of your debts if it can allow. This will save you on paying part of the interest that your debt would have attracted if you were to continually pay the normal installments.
  • Do you by chance receive monthly payments? Maybe you were in a car accident or had the unfortunate situation of suffering a serious personal injury due to the negligence of someone else? If so, did you know legislation was passed to allow you to sell your future payments as one lump payment? Check this resource to learn which companies are the best to handle this for you so you can get out of debt quickly.
  • Use that bonus, or part of that hefty per diem to offset that debt: While it might be tempting to pursue other projects or even to go for a holiday with that hefty bonus check from your employer, it would be wiser to use it to clear part of, or even all of your debts, if it can.

If you’ve received some hefty per diem, you can save part of that amount and use the remainder to offset part of, or all of that debt, if it can. Having your monthly debt repayment reduced by such a lump sum payment will hand you a lighter debt to manage, and even reduce your repayment period.

Instead of using that bonus money for short term gratifications such as going for a holiday, using it to offset your debt will hand you several years of financial freedom.

  • Perform a credit card balance transfer: A credit card balance transfer is simply paying off balance on one credit card by transferring it to another credit card. Using one credit card to pay off balance on another credit card; for a fee or for free.

The trick here is to transfer the balances to credit cards that offer you zero or lesser interest rates. You can also get a balance transfer credit card (a specially designed credit card to help you offset credit card balances at no, or favorable costs).

Key Points

There are three strategies you can utilize to arrange and effectively pay up the debts

  1. You can arrange all the debts with the ones charging high-interest rates top on the list, and downwards (closing the list with the one charging lowest interest rate).
  1. Arrange the debts in a descending manner (with those having highest balances top on the list, and the ones with lowest balances down the list).
  1. You can arrange the debts in ascending manner (with those having lowest balances top on the list, and the ones with highest balances closing the list).
  • You can use your savings, that bonus check, or that hefty per diem to help you offset debt.
  • You can also do a credit card balance transfer to help you manage a credit card debt.