There is no one-size-fits-all debt elimination plan. There are several strategies that can be useful when trying to pay down debt under your current financial situation. Here is a brief overview of these strategies that can help you determine the best way to create your own debt elimination plan.
The debt snowball strategy focuses on paying off debt in order of smallest to largest, while still making minimum payments on other debts. Once your smallest debt is paid off, you’d take its minimum payment amount and add it to the minimum payment of the next smallest debt. You would repeat this process until all accounts are paid off. This strategy uses psychological momentum to help you pay down your debt fast, but it is not the fastest or cheapest strategy.
The debt avalanche strategy focuses on paying off debt with the highest interest rates first, while still making minimum payments on other debts. Once the debt with the highest interest rate is paid off, you’d take its monthly payment amount and add it to the payment of the debt with the next highest interest rate. You would repeat this process until all accounts are paid off. This strategy can help you pay down your debt quicker and save money on interest in the process.
You can consolidate your debts using a balance transfer credit card or a fixed-rate consolidation loan. Typically, with a balance transfer credit card, you’ll want to choose one that does not charge interest for a fixed amount of time. This is ideal for those with good credit who are sure they can pay down their debt during this promotional period, which usually lasts between 12 to 15 months.
With a fixed-rate debt consolidation loan, you can pay off your debt in full and then make installment payments over a set term. This option is good for those with fair or bad credit. The better your credit score, the more likely you will qualify for lower interest rates.
Create Your Own Debt Elimination Plan
Using one or more of the above strategies, you can begin to draft your own debt elimination plan. Be sure you really understand your budget, so you know how much you can afford to put towards debt each month. You may also consider finding ways to lower your bills or make extra money each month.
Debt Relief is Always an Option
These three strategies are ideal for those who are financially able to pay off their debt within five years, while still affording their other expenses. If this isn’t possible, the best option may be to work a debt relief company. Debtmerica Relief has over 16 years of experience in providing relief to our clients whose financial burdens have become too much to handle. If you need help with debt, give us a call at 800-470-8155 for a free consultation.