What Kind of Debt Planning Should I Use
A step-by-step guide on how to pay off debt with the right plan and become debt-free quickly
Which Debt Payoff Method Can You Use?
Are you ready to pay off your debt? Now is the time to decide which method you want to use. Debt snowball or avalanche? Or debt consolidation? Let’s take a quick look at the methods.
Key Highlights
- The general idea with the Debt Snowball plan is to pay your debt every month as much as you can before it’s well cleaned out.
- The debt avalanche plan is a strategy of paying off debt by eliminating the highest interest balance first.
- A debt consolidation plan may provide relief if you’re overwhelmed by debt, have difficulty making payments, and keeping track of everything.
- A debt management plan provides a repayment plan that lets borrowers control unmanageable debt.
Debt Snowball Plan
The general idea with the Debt Snowball plan is to pay your debt every month as much as you can before it’s well cleaned out. In a debt Snowball plan, debts are ordered from the smallest to the biggest balance. The debt snowball will help you change your behaviour with money so that you never get back in debt and give you power over your debt. It forces you to stay intentional about paying one bill at a time until you are debt-free.
Debt Avalanche Plan
The debt avalanche plan is a strategy of paying off debt by eliminating the highest interest balance first. Paying off your debts with the highest interest rate first can save you time and money. All your extra cash will be used to pay off the debt with the highest interest rate. Then you’ll step onto the debt with the next highest interest rate and so on until you have paid off all of the debt. This differs from the Debt Snowball plan in which you prioritise the debts according to the lower interest.
By always being conscious of the type and purpose of the debt you are taking on you’re protecting your future.
Debt Consolidation Plan
A debt consolidation plan may provide relief if you’re overwhelmed by debt, have difficulty making payments, and keeping track of everything. A debt consolidation plan is a debt management tool that helps you to combine all of your current credit card and personal loans into a new lower-interest loan. It will save you money on interest while also simplifying your finances and lowering your stress levels. A debt consolidation plan may also be used to restructure the terms of your debt, reducing your monthly payments by paying the loan off over a longer period of time.
To manage debt, it helps to have a clear idea of all the debts you have.
Debt Management Plan
A debt management plan provides a repayment plan that lets borrowers control unmanageable debt. You can learn from a plan how to handle your debt successfully. A debt management plan establishes a new payment schedule and terms that can help you pay down your debt faster and more affordably. It’s one of the ways by which you can take care of your debt and reduce your monthly payments and save money on interest and fees. If your debt is already out of control, a debt management plan will help you get back on track.
Tips to Manage Your Debt
Track debt – Making a list of how much you owe and how much you pay in fees and interest is a good start if you’re trying to work out how to handle your debts.
Compare what you earn, owe and spend – Create a budget based on your salary from your work or extra money from things like investments, as well as how much you need for necessities like rent, groceries, and bills.
Focus on one debt at a time – See if you can consolidate loans into one payment as Multiple debts can mean multiple fees and interest charges, which is why consolidating debts into a single loan with a lower interest rate could be an option that can help you save you money.
Pay your debts on time – Late payments make it more difficult to pay off your debt and you’ll be charged a late fee for any missed payment so always pay your debts on time .
Decide Which Debts to Pay off First – Since credit cards have higher interest rates than most debts, paying them off first is always the safest option. Prioritise and rank your debts in the order you intend to pay them off using your debt list. You should also prioritise paying off the debt with the lowest balance.