Debt can cause a lot of stress. Accumulation of debts is a gradual process and suddenly we witness a huge pile of it on our doormat. Borrowing a personal loan or using your credit card to manage your expenses is not unhealthy for your financial health. But not maintaining a balance between borrowing and repaying may cause you stress. ⭐Debt Consolidation ⭐Money Management
Debt is an inevitable phenomenon that comes in all forms – mortgage, personal loan, car loan or a student loan. While debt itself is not a problem, not repaying it, is. Moreover, if you’re burdened with a heap of debt, denying your financial situation, things could get worse. In this pandemic-driven economy, where every 2 in 6 people have lost their jobs, dealing with debt can be difficult. So how does one pay their dues?
In this article, we’ll learn about 2 fast ways to pay off debt, to lead a financially secured life.
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Paying Extra Towards Your Debt
The only way to get out of the thunderous cloud of debt is to repay it. A good way to get out of debt fast is to pay extra. When you make extra payments, you’ll have to either a pay a larger sum or pay more often. For paying extra, you may have to squeeze in these payments into your budget each month.
If you build yourself a well-planned repayment strategy, you won’t feel overwhelmed with repayments. Moreover, planning helps you stay a step ahead and keeps you focused on the goal.
Regardless of the constituents of your debt, the sooner you pay it off the better. This will help you save on the interest payable towards your loan, throughout its term, speeding up the payoff process. However, some lenders may levy an overhead charge on premature repayment. So ensure that you’ve thoroughly checked that your lender won’t charge an extra fee on early repayment.
There are two methods to help you pay off your debt fast by making extra payments:
- Debt Avalanche: As per this method, you pay off the costliest debt first, followed by the smaller debts. Paying off the debt with the highest rate of interest will make it easier for you to pay off the smaller ones. You essentially end up saving more money with this method, and with extra payments, you’ll get rid of your debt even faster.
- Debt Snowball: This method functions the opposite way. Herein, you pay off the smaller debts first, followed by the costlier ones. You roll the money from the smaller debts to the pay off the bigger ones. This method may give you an immediate sense of appeasement, compared to the avalanche system. Additionally, the extra payments will bring you closer to your goal of going debt-free.
Using Debt Consolidation to Ease Your Debt
Dealing with multiple debts can wreak havoc in your financial life. If you are perturbed by your debt pile, a debt consolidation loan can ease your financial burden. Debt consolidation helps you consolidate your all your debts into a single, comprehensive loan. Now, you will only be obligated to pay towards a single debt. A personal loan taken out to consolidate debt is a great way to tackle multiple debts with different interest rates and repayment dates.
Debt consolidation is undoubtedly a great financial move, but it does require you to strategize your loan. Here’s when debt consolidation is a good idea:
- Your total debt (minus the mortgage) doesn’t exceed 40% of your monthly income.
- You have a decent credit score to secure a debt consolidation loan on low-interest rates or a 0% interest balance transfer credit card.
- Your income is stable enough to cover regular monthly repayments.
- You have a plan in place to avoid falling into a debt trap again.
Let’s consider this simple instance to understand when a debt consolidation loan makes sense. Let’s say you’ve 2 credit cards and a vehicle loan, with interest rates ranging from 18.99% to 25.99%. You have a demonstrated responsible credit behaviour by making timely repayments – so you have a good credit score. Now if you wish to consolidate your debt with a personal loan at an interest of 8%. Since the new loan offers a lower interest rate, you’ll be able to reap the benefits of debt consolidation.
A lot of people would consider debt consolidation to be their promised land. This gives them more control over their debt situation. You take out a debt consolidation loan for a term of 3 years. Now you know that the loan will be over within the designated term- 3 years, considering you repay on time and in full. On the contrary, repaying lower amounts on your credit card will accrue you more cost in the form of interest. This is because it could take your months or years to fully pay off your balance.
Here’s how you can consolidate your debt:
- Personal Loan for Debt Consolidation: Personal loans often have fixed interest rates. A debt consolidation loan will allow you to pay off multiple debts at once. You will now solely have to pay towards a single debt, over a definite period of time. A debt consolidation loan is ideal if you resolve to limit your expenses and refrain from taking on any new debt. Even if you continue to spend using your credit card, be sure to keep the balance low.
- Balance transfer card: A balance transfer card on a 0% interest rate can be used to transfer all your debt onto a single card. It’s called a 0% transfer card because you’re not required to pay any interest during the initial (promotional) period – usually 12-18 months.
Defuse the ticking time bomb of debt before it swallows your financial life. Whether you consider extra payments or a debt consolidation loan, be prepared to face a financial crunch. Apart from preparing a budget and allocating costs, you will need to keep your expenses in check. This will not only help you pay your dues faster but will also help you steer clear of debt in future.
When you consider a personal loan to consolidate your debt, it is important to shop for better loan offers. Let LoanTube help you find your ideal loan with our hassle-free borrowing experience. Visit us to compare rate locked loans from multiple lenders, and put your finances at ease.