8 Things to Consider When Paying Off Debts

Paying your debt is the best financial decision you can make. However, the question that many people seek the answer for is how to do it effectively? Knowing where to start, which approach to take, and what to avoid can help you eliminate your debt faster while maintaining a good credit score. Here are 8 things to consider before tackling this hungry monster eating away your savings.

One common method to paying off debt is through the use of debt consolidation. Read this article to find out everything about debt consolidation. Check out freedom relief reviews.

1. Crunch Some Numbers

Before anything else, take a pen and paper and write down your monthly financials, including your income, expenses, savings, and everything related to money. Once done, categorize your expenses into essentials and non-essentials. For instance, food is essential, but reducing the number of times you dine out and starting to eat at home more can help you save some money.

Similarly, for entertainment, cancel subscriptions for platforms you don’t frequently use. This means if you’ve got Netflix, Amazon Prime, Disney+, and other streaming channels, keep just one and cancel the rest. The same goes for music and other subscriptions like magazines.

Also, see if you can control some other spending habits like frequent shopping. Once you’ve got a final amount of extra savings per month, add it to what you already save every month and the amount you pay in debt payment(s). This should become a big chunk of money that you can use to pay priority debts.

2. Prioritize Your Debts:

Not all of your debts will be equal; some will have very high interest rates, while some will be smaller in size. List all of the debts with their outstanding balances, interest rates, and time limit. Now prioritize the debts you want to pay off first.

We suggest paying bigger/expensive debts first. If you’ve got a debt that requires a significant portion of your monthly savings, then pay it off first while making minimum monthly payments on the remaining debts. Once that’s done, you’ll have a lot more money every month to pay smaller debts quickly.

3. Leverage Balance Transfer:

This is another thing you can do to consolidate some or all of your credit card debts into one monthly payment plan. The best part is many credit card providers in Canada offer a 0% interest rate (if your credit score is good) for a promotional period of 12 to 18 months.

You can transfer the balance of all of your credit cards into this new card and enjoy an interest-free payment, resulting in huge savings. And even if your credit score is not good enough, you can still get a good interest rate, typically under 10% on the new credit card.

4. See if You Can Benefit from House Equity:

This is another option if you’ve got a massive debt to pay. You can take out a loan against the equity of your home, minus the mortgage amount. Use this amount to pay off the debt and then pay your home equity loan in easy monthly instalments. This is especially a good option if your debt has a very high interest rate because a home equity loan typically has a low interest rate.

The best part is, as you make payments for your home equity loan, you start getting the equity back. Once you’ve paid everything, you’ll receive complete ownership of the equity you put down as collateral.

5. Go Cold Turkey on Credit Card Spending:

You cannot effectively pay off debt if you keep taking out credit. It’s just like trying to fill a bucket with holes at the bottom. So, exercise some extreme self-control and go cold turkey on your credit cards.

This will not only help you pay off the debt faster but also keep your credit score in good shape, as taking out further credit can hurt it pretty badly.

6. Track Your Finances & Improve:

When you crunch numbers before making a debt payoff plan, you might overlook some areas where you could save money. But as you start paying off the balance and track your monthly spending, you can find more areas to save money, which can be put towards paying off your debts faster.

This seems like an excessive step but just try it for the first month; you’d be surprised by how much more you can save than what you initially anticipated.

7. Automate the Debt Payments:

We are ordinary people with average discipline, especially when it comes to spending. We cannot always fight the temptations to shell out some bucks on things we don’t necessarily need. This is where you need to bind your hands by automating the debt payments.

Schedule monthly payments for your debts directly from your bank account. So as soon as the monthly income lands in your account, the portion you’ve allocated to debt payment will automatically go to the lender(s). This way, you’ll be only left with what you need to get by and nothing to spend on extra or unnecessary things.

8. Create a Side-Hustle:

Okay, we know you’re already working like a machine, and we appreciate your seriousness towards your life goals. But a small rough patch like debt can put some bumps in your journey. And unlike driving a car where you don’t have any option but to jump up and down until the bumpy patch is over, you have a choice in life.

Create a side-hustle just for the short term. It can be anything, even something as simple as flipping burgers under McDonald’s’ good old golden arches. This should help you boost your debt payment speed and get out of this trap faster.

Parting Words:

We understand doing all of the above will not be easy, but you’re no stranger to challenges and difficulties in life, right? So get up, make a plan, start paying off the debts, be consistent and liberate yourself from this bog that’s sucking you in deeper with every passing month.