Coming up with a debt management plan is crucial when you owe multiple debts. Prioritize your debts by covering necessary expenses first, such as your mortgage, car payments, and student loans. Be aware of all of the different debts you owe in order to create a successful repayment strategy that works for you.
Prioritize Your Debts – Which Debts Should You Pay Off First?
Organize Your Debts
The first step towards prioritizing your debts is knowing all of the different debts that you owe.
You should also be aware of the following information:
-Payment Due Date
You can find this information in your statements, online, or by calling your creditor. The biggest factors to consider are the balance of your debt and interest rate.
Choose the Right Strategy
Once you’ve retrieved all the necessary information, assess the correct repayment strategy for you. These methods include:
Debt avalanche method: You may want to repay the debt with the highest interest rates off first. It’s suggested to make extra payments on this debt first because interest will accumulate on your principal balance as time passes.
Debt snowball method: Pay off the lowest balances first. This is a great psychological motivator for some because eliminating debts quickly will make you more enthusiastic about paying everything off.
Prioritize Your Expenses
In addition to coming up with a plan, you should prioritize your debts according to high-priority in case you come up short. For instance, keeping a roof over your head and paying your mortgage or lease is the most important expense, followed by other secured debts, such as your auto loan. Then focus on other legally required debts, such as taxes, student loan payments, unsecured debts, such as credit cards and personal loans, medical bills, etc.
Track Your Progress
It’s very important to set goals to pay your debt off by a certain time frame and track your progress with different apps/software. However, don’t go so overboard that you deprive yourself of having a life. Remember to celebrate your victories every once in a while.