Effective Planning: How to Repay Debt
2:00 AM
There are times when just meeting your financial needs will leave you with a tremendous amount of debt. When it comes to repaying debt and properly managing your finances, you have plenty of options available to you. The best way to repay debt involves focusing almost exclusively on higher-rate debt and gradually working your way to lower-rate debts. Keep in mind that all debt need to be paid, but keeping the lower-rate debt to the minimum amount and channeling remaining funds to the higher-rate debts will help you get out of debt quicker.
The first thing you should do is prioritize your debt. List each creditor and including total amount due, interest rate charged, and minimum payment due on a monthly basis. With this list in hand, you will see at a quick glance what is owed, how much you need to repay every months, and how which creditor is the biggest culprit in terms of interest rate.
Now that you have completed a comprehensive list of your debt, add up the "minimum due every month" column. This tells you how much you owe collectively to your debt. Balance this amount to what you have available in terms of income. You should hopefully have more money available. These extra funds should be aimed entirely at the highest-rate debt (your top priority). Do not allocate any remaining capital to all debt; use all of the remaining capital to repay the top priority creditor. This will allow you to repay debt a lot quicker.
Another good way of paying regularly and managing the personal finance is to keep depositing money in your savings account, no matter how minimal this amount might be. Even a $10 per pay period can add up and be used to pay down your debt once the savings amount accumulates. The importance of a savings account should not be overlooked as it can help weather future financial setbacks and can allow you to absorb unscheduled expenses.
As a last resort, consider borrowing money from family and friends to repay your higher interest debt. Since money from such sources is normally interest-free, you can repay such loans without having to worry about how much you are "giving away" to creditors who charge (much) higher rates.
When you have a higher debt load, keep in mind that your rate of progress will appear much slower. It is essential that you keep this in mind and not get discourage after several months of making payments and not seeing substantial reductions in the total debt. Remember that almost immediately you will see improvements in your financial situation when you embark on a debt repayment plan. As well, your credit score will start to reward you within months of starting and sticking to a discipline repayment plan.
The first thing you should do is prioritize your debt. List each creditor and including total amount due, interest rate charged, and minimum payment due on a monthly basis. With this list in hand, you will see at a quick glance what is owed, how much you need to repay every months, and how which creditor is the biggest culprit in terms of interest rate.
Now that you have completed a comprehensive list of your debt, add up the "minimum due every month" column. This tells you how much you owe collectively to your debt. Balance this amount to what you have available in terms of income. You should hopefully have more money available. These extra funds should be aimed entirely at the highest-rate debt (your top priority). Do not allocate any remaining capital to all debt; use all of the remaining capital to repay the top priority creditor. This will allow you to repay debt a lot quicker.
Another good way of paying regularly and managing the personal finance is to keep depositing money in your savings account, no matter how minimal this amount might be. Even a $10 per pay period can add up and be used to pay down your debt once the savings amount accumulates. The importance of a savings account should not be overlooked as it can help weather future financial setbacks and can allow you to absorb unscheduled expenses.
As a last resort, consider borrowing money from family and friends to repay your higher interest debt. Since money from such sources is normally interest-free, you can repay such loans without having to worry about how much you are "giving away" to creditors who charge (much) higher rates.
When you have a higher debt load, keep in mind that your rate of progress will appear much slower. It is essential that you keep this in mind and not get discourage after several months of making payments and not seeing substantial reductions in the total debt. Remember that almost immediately you will see improvements in your financial situation when you embark on a debt repayment plan. As well, your credit score will start to reward you within months of starting and sticking to a discipline repayment plan.
About the Author:
Chris Blanchet has more than 16 years of experience as a Financial Advisor at one of the world's largest banks by market capitalization. He maintains a debt-free blog at How to Repay Debt.com. As well, he provides technical investment advice at Online Trader Today.
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