Start with the most expensive debt
Paying off the debt that charges the highest rate of interest makes sense because if you pay that off first rather than paying off all the debts in equal chunks, it will save you a lot of interest expense.
The lower your interest expense, the more money you’ll be left with for paying the remainder of your debts off. It’s simple math.
Start Living On a Budget
Paying off debt is a stressful thing and it stays with you until you don’t start making smarter financial decisions. The key point is to spend less than what you are earning. Make a budget and try your best to not over spend more than that. It can be difficult for the first few months. Keep some of you earnings aside to pay off the interest. Make an affective budget on a good budgeting app.
STOP using credit cards
Credit cards charge hefty rates of interest. It’s best to cut down on expenses while you’re trying to pay off debt rather than resorting to the use of credit card debt.
Credit cards also give you the psychological flexibility of making purchases that you wouldn’t otherwise make because it doesn’t require any out-of-pocket payments. You might also be lured in with offers that nudge you into making those unnecessary purchases or expenses.
If you’re trying to pay off debt fast, it’s counter-intuitive to take on even more debt, at a high rate of interest. So hide your credit cards away in your cabinets until you’re done paying off the debts.
The simplest way - discipline
Allocate a fixed monthly amount out of your income for paying off debt. The more you pay, the lower your interest expense will be for the upcoming months.
Compound interest is the eighth wonder of the world, says Warren Buffet. But might I just add that compound interest (when it is an expense rather than an income) can also pile up the burden of debt significantly!
To rid yourself of debt fast, the simplest way is to allocate a good chunk of your monthly income to pay it off. Naturally, you’ll need some of your income for personal expenses, insurance, etc. But it doesn’t make sense to invest your money elsewhere unless you’re earning a higher rate of return on the investment than what you’re paying on your debt.
Use the Snowball Method
The Snowball Method says to pay off budget from the smallest debt to the largest. As the smaller debts can be paid off more quickly, it will provide you the confidence. Make minimum payments on the other debts and attack on a bigger scale to these smaller debts. As you pay them off, target the next smaller debt and keep on doing until you hit the largest debt on your name. This is a commitment and don’t give up on mid process.
