3 Common Debt Repayment Strategies and How They Work

LOS ANGELES – January 26, 2022 – (Newswire.com)

iQuanti: Paying off your debt can seem overwhelming and you may not know where to start. But with the right repayment strategy, it will be easier for you to get out of debt over time. Let’s dive deeper into three common debt payoff strategies and how they can help you get out of debt so you can choose the right method for your financial needs.

1. Debt Snowball Method

With the debt snowball method you pay off your debts from the smallest to the largest balance. First, make a list of all your outstanding debts. Then you make the minimum monthly payments on all of your debts, and earmark as much as you can on the debt with the lowest outstanding balance. Once you’ve paid that off, focus on paying off the debt at the next lower balance. Continue the process until you have paid off all of your debts.

The idea behind the debt snowball method is to help you gain momentum early in the debt repayment process by working off those small balances quickly. This can motivate you to keep going and eventually eliminate all your debt.

2. Debt avalanche method

With the debt avalanche method, you create a list of your debts from highest to lowest interest rate. Then, each month, make the additional payment on the debt with the highest interest rate while making the minimum payments on all other debts. Pay that off first, then move on to the debt with the next higher interest rate. This strategy can save you more money than the debt snowball method, but remember that you won’t have the element of instant gratification like you might with the debt snowball method.

3. Debt consolidation method

The debt consolidation method involves applying for a debt consolidation loan and paying off all high interest debt balances at the same time. Once that’s done, your only monthly payment due is the loan payment, which ideally has a lower interest rate than your debt.

This is how you decide which repayment strategy is right for you

The debt restructuring strategy that is right for you depends on your financial situation and personal preferences. If you’re able to keep up regular payments without the instant gratification of bringing accounts to zero early in the process, go for the debt avalanche method. The debt snowball can cost you more over time, but you’ll see quick wins early in the process, which can make the system easier to maintain. And debt consolidation is a great way to reduce multiple debts to one payment per month at a lower interest rate. Whichever method you choose, make sure you stick to strategy and be consistent in payments so you can gradually work your way out of debt.

Note: The information provided in this article is for informational purposes only. Ask your financial advisor about your financial situation.

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3 Common Debt Repayment Strategies and How They Work

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