Everyone makes financial mistakes that have long-lasting consequences, but that doesn’t mean it’s impossible to recover from them. While it won’t be as easy to get out of debt as it was to fall into it, there are several different strategies for repaying everything you owe. Here are a few of the most effective ways you can repay your debt.
Pay Off Your High-Interest Debts First
Paying off creditors that are charging you the highest interest first will make it easier for you to catch up on all your debts. To see this in action, take a look at a minimum credit card payment of $125 that charges 15% interest. At that rate, $62.50 of that payment will go towards interest. If you’re paying 20% interest, $83.33 of your payment will go towards paying interest. Paying off these accounts first will give you that much more money to put towards your other debts.
Use the Snowball Strategy
This approach involves paying off your smallest debt by putting all of your disposable income towards paying that debt. Once you pay off your smallest debt, move onto the next smallest debt, putting all of your disposable income towards paying off that debt. As you pay off each debt, you’ll have a little more disposable income to devote towards paying off the next creditor. By the time you reach your biggest debts, you’ll have a larger amount of income to put towards those debts, helping you to pay them down more quickly.
Attack the Biggest Balance First
This is an unpopular method simply because it presents more of a challenge when you have a limited amount of disposable income. While it will take longer, paying your biggest debts first will get them out of the way and allow you to pay off several smaller debts together in the future. People choose this option if the interest is higher on these debts due to having taken cash advances. They may also choose this option to settle a debt before going through with a divorce.
If you have tried these methods without success, your debt may be too much for you to handle without help. Consult a debt relief counselor or a bankruptcy attorney to find out what options are available to you. There may be programs in your area that can help you repay your debts without forcing you to file for bankruptcy.