If one of your goals for the year was to reduce your growing debt, you’ll want to know what the best ways to approach this are. Being in debt is a worrying time, so finding solutions to improve your finances will ensure you can have a healthier financial future. To start your journey towards financial stability, you’ll need to know where to start and how to stay consistent when reducing your total debt. To help, here is our quick guide on how to pay off debt in 2021.
Look at Consolidating
If you are someone with multiple types of debt with different lenders, keeping up to date with each repayment can be a struggle. You may have many different repayment dates to remember as well as differing amounts that you need to ensure you have available credit for. This can make focusing on maintaining repayments difficult, so a possible solution is to consolidate. You can turn multiple repayments and credit agreements into just one with flexible debt consolidation loans, helping you pay back your debt with a single monthly repayment. This is not only much easier to maintain but can help you spread the total cost over a longer period to keep repayments low. If approved, you would simply pay off your other creditors with the agreed funds, helping settle any long-standing agreements you’ve struggled with.
Focus on Reducing Outgoings
One reason many fall into debt is by having high monthly expenses, leaving very little leftover each month to either save or put towards existing debt. The best way to tackle this is to review your income and expenditure, focusing on reducing any non-essential spending. This is because you’ll need to cover your essential outgoings such as your existing debt repayments, mortgage, or utility bills etc. If you haven’t reviewed your outgoings for a while, you may discover lots of opportunities to save money. Small expenses such as eating out, spending on leisure items and more can quickly add up across the month. If you are someone that wonders why they have no money left over, reviewing, and reducing non-essential outgoings is a good place to start.
Address Debt with the Highest Interest
Of all the types of debt you may have, the ones with the highest interest rates should be reduced first where possible. When attempting to climb out of debt, having interest added back on will make doing so much slower and more expensive in the long term. If any of your debts accrue monthly interest, such as with a credit card, this will continue to add interest until it is paid off. This type of debt has some of the highest APR rates, so you’ll want to settle these as quickly as possible. Review your creditors and the interest being applied and identify the most expensive ones. This way, eventually you’ll only be left with debts with the lowest interest rate or, ideally, no interest being added at all.
Pay More than the Minimum Payment
Having debt such as a personal loan means your repayments are fixed and you know at the beginning how long it will take to pay it off. Other types of debt such as credit cards work differently and once past any promotional 0% period, will accrue monthly interest. Credit cards will allow you to pay a minimum payment each month, however, whilst this can make them affordable to maintain, paying only the minimum will mean the debt lasts longer. It can also mean the interest each month added may even be more than this, meaning the debt will never be settled. If you are guilty of paying just the minimum payment, you should review your disposable income and pay more where possible. You’ll clear the debt quicker and pay less interest overall.
Finding the solutions that work best for you will depend on your affordability. By following the tips above, you should be able to reduce your outgoings and pay more towards your debt. If you have very little to pay towards your existing debts and are in financial difficulties, such as from unemployment, it is best to seek independent financial advice.