If you have any debt or you are fed up with paying credit card interest charges, there is a way out. There are different methods that can be used to pay down debt and get your financial situation back under control.
Different methods one goal
There are different methods of paying down debt and the option you choose must be right for you. There is little point having a plan and finding it too difficult to use and you end up in a worst situation than before. This is why it is vital that you consider all your options and choose the right plan for you and your needs.
Debt Consolidation loan
This is a loan where you bring all your debt under one new loan; you use the money that you receive from this loan to pay off all your outstanding debts to your current creditors.
The best time to apply for a consolidation loan is when you realise that you are having problems and you want to reduce the monthly payments. It is important that you do this before you miss any payments or have late payment charges; these items are sent to your credit file and it will increase the chances of a rejection in the application or a higher rate of interest being offered.
You need to go armed with the information about your current debt; you need to know the full outstanding balances of each debt you owe along with the current rate of interest. You want to pay less for the debt long-term and this will not be possible if you don’t know the current interest rate.
If the rate of payment each month is lower but the rates higher, this could indicate that the length of the term has been increased. This is not a great option; you will be paying more for the money you borrowed, in the long-term.
The snowball method is where you are collecting all the information of your debts in one place and listing them in the order of the interest rate. You need to pay off the minimum each month from your debts, but you then need to pick one debt, some experts say your highest interest rate, others say the lowest amount owed. The highest interest rate option is suggested because otherwise, long-term you will pay more back in interest, but others suggest the lower balance because you will see results quicker.
Whichever debt you pick you must put more money each month into this debt; then when it is paid off you use the money that you save from paying off that debt to add to the payment of the next debt on your list until all debts are paid.
Your options your choices
Whatever option you choose you must write-up a debt repayment plan, this will tell you how you are going to pay off the debts and the time frame that you hope to pay off the first debt. It needs to be realistic.
You will still need money to live; a budget that is too restrictive could lead to a disaster and failure of your debt repayment plan. If you have never created a budget before, there are charities that will help you work out the best options for you and your needs.