Debt repayment is the manner of periodically paying your principal debt or loan balance. Repaying debt helps you anticipate giving over added interest to your creditor. Following a a method on repaying your debts can help you eliminate them quickly, subsequently. This will also help you save some of your interest fees
Debt Repayment Methods
Dealing with mounding debts is devastating. If your overdue bills are stacking and creditors are harassing you when collecting for payments, then you have a possible debt problem.
If you’re having difficulty in managing your debts, you must take careful planning on how to pay down your loan balance. Moreover, you do not want to reach the point of filing for bankruptcy.
The Following are the efficient methods that will help you pay off your debt.
Debt Stacking or Avalanche Method
Debt stacking is apparently the usual preference among the debt repayment method. It involves paying from the lowest to the highest interest rate. Besides, apart from your payday loan, credit card debt also accumulates the high-interest rate, which is approximately 19.99% for a normal credit card. Therefore, an initial start to effectively repay your debt, in this case, is to cut away with your credit card balance.
Besides, debt stacking does not require extreme calculations. You can simply start by looking at your entire debt to determine the ones with the highest interest rate. For instance, if you have a credit card at 25%, a student loan at 7%, and a mortgage at 5%, the debt stacking method swill let you focus on your credit card debt
Once you’ve analyzed which debt acquires the interest rate, you layout your expenses to determine how much you can afford to repay each month. Even if you’re aiming to pay for the debt with the highest interest, you should also be making the minimum payment on your other debt.
- A faster way to pay off your debt since you’re paying a larger amount on your deb
- It allows you to save some extra interest.
- You can’t potentially afford the minimum payments, including the additional every month.
- If your large debts have the highest interest rates, it can take you much longer to pay it off.
In the snowball debt repayment method, you will still make the minimum payments in al of your debts. However, unlike the debt stacking method where the focus is on the interest, you will make payments based on your balances. Also, with the snowball method instead of paying the debt with the highest interest rate, you’ll have to start paying with the one that has the lowest balance.
- You can eliminate at least one of your debt and the other one at a time, which triggers a sense of fulfillment and motivation.
- Considering your focus on the debt with a smaller balance, it will not cost you a huge amount to achieve your goal.
The significant disadvantage of the snowball method is that you can’t save much interest, which will end up paying more than usual.
How to Knock Out Your Debt.
To seek ways in managing your mounding debt, you might want to explore other debt solutions such as consolidation loan, debt settlement, credit counseling, or a consumer proposal and see if you qualify.
CONSUMER PROPOSAL EXAMPLE
Example Unsecured Debts
|2||Credit card 1||$6,812|
Your Monthly Repayments Would Be
a Consumer proposal $748
(total contractual repayments)
a Consumer proposal $295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances.