It is very important to always pay up your debt on time. This is to prevent loans and debt hanging around forever and just collecting interest. Waiting long before you pay up debt is an easy way to lose money than you need to. Paying off any of your debt or loans is a good thing and certainly helpful to your budget and financial goals, you also need to decide the debt that should be paid first.
The order in which you do pay off your debts can have substantial impact on the money you save and how quickly you are of debt. This is because there are multiple things you need to consider when planning your debt pay-off budget; some pointers have been listed below for you to consider that may help guide you in the right direction. Every financial situation is different and the path you choose should be determined by your unique position and needs.
Should I Pay Off My Small Debts First?
The decision of where to start paying off your smaller debts first depends on a few different factors:
- How much debt you have
- How much interest you are paying on our higher debts
- How much money will be freed up each month by paying off your smaller debts first
This is also known as “snowball method” and it is a very popular way to strategically eliminate debt. However, if you feel that this approach will not make a big enough dent I your debt quick enough after your assessment, you may want to check out the next method.
Should I Pay Off the Higher APR Debts First?
Paying off your debt with the highest APR first is referred to as the “avalanche method”. This method can be a good choice for those who have high monthly payments due to large amounts of debt tied in with high interest. While this method can take a little longer to produce results, as often you will end up tackling the highest debts first, it can also be the most rewarding once payment is completed; you’ll have more money available each month in your budget and that can be put towards paying off the next debt.
Should I Pay Off the Largest Monthly Payment Debt First?
It makes sense depending on how high monthly payments are and how much debt to pay off your debt in accordance with which ones have the higher monthly payment. The more money you will have to go towards paying off the remainder of your debt the more monthly payments you reduce.
Stay Motivated and Disciplined with Your Payments
Whichever method you choose, it’s imperative that you consistently meet your payment obligations in accordance with your plan. You’ll also need to continue to make all other credit card and loan payments on time while you are tackling paying off any one loan. If you miss payments or are late on payments while trying to pay off your debt it can set you back with fees, raised APR’s and potentially lowered credit scores.
Be Flexible and Balanced in Your Approach
You will find that your debt situation changes as you pay off your debt. You are expected to be opened to change. There will be enough money to pay off another card entirely with the amount you are saving in monthly payments interest alone after paying off three credit cards. While sticking to your plan and remaining disciplined is important, it’s definitely okay to deviate from the plan for a while if it means paying off a chunk of your debt faster. You can always revert back to the original plan at a later time.